WHAT  NEXT  IN 
EUROPE? 


BY 

FRANK  A.  VANDERLIP 


NEW  YORK 

HARCOURT,  BRACE  AND  COMPANY 


COPYRIGHT,    IQ22,   BY 
HARCOURT,    BRACE  AND   COMPANY,    INC. 


PRINTED    IN    THf.    U.  S.  A.   BY 

THE    QUINN    a    BODEN    COMPANY 

RAHWAY.    N.    J 


PREFACE 

IN  Europe  and  in  the  bordering  Asiatic  states,  in- 
cluding Asia  Minor,  there  are  half  a  billion  people. 
We  can  hardly  grasp  the  fact  that  the  lives  of  more 
than  a  quarter  of  the  world's  population  are  being 
shaped  by  the  events  of  the  War,  and  even  more  by 
the  developments  which  are  growing  out  of  the  Peace. 

Discussions  of  trade  conditions,  currencies,  govern- 
ment budgets  and  government  debts  embrace  incom- 
prehensible totals,  the  unit  of  which  is  that  colossal 
sum,  the  billion.  They  form  the  background  against 
which  to  view  the  gigantic  human  problem  that  is 
being  faced  by  the  entire  continent.  It  is  not  merely  a 
story  of  finance  and  economics ;  it  is  the  most  thrilling 
human  episode  in  the  history  of  mankind.  The  vast 
numbers  involved  are  for  the  greater  part  made  up  of 
the  most  cultivated,  intelligent  and  specially  trained 
people  in  the  world.  The  crisis  in  which  they  are  in- 
volved is  a  great  human  tragedy,  and  is  far  from 
being  a  mere  matter  of  pounds,  francs  and  marks. 

The  economics  of  Europe  is  not  a  subject  to  be 
left  to  technical  financial  experts.  It  is  something  that 
every  intelligent  person  in  the  world  should  attempt 


536529 


IV 


PREFACE 


to  understand  in  its  broad  effects  and  its  consequences 
to  humanity. 

In  America  we  stand  aloof,  in  a  sense.  It  is  true 
that  we  are  deeply  interested,  that  we  are  thinking 
internationally  as  we  never  thought  before,  but  we 
hardly  apprehend  how  closely  related  are  our  affairs 
to  the  European  situation.  We  like  to  call  ourselves 
hundred-percent.  Americans,  and  forget  that  this  may 
mean  hundred-percent,  provincialism.  The  very  thing 
that  we  blame  Europeans  for,  an  exaggerated  national 
ego  which  is  playing  such  a  large  part  in  their  dis- 
organization, is  a  trait  which  we  ourselves  have  highly 
developed.  We  regard  it  as  the  purest  form  of  pa- 
triotism to  raise  the  standard  of  "America  First."  We 
do  not  mean  by  that  that  America  should  be  first  in 
leadership,  in  helpfulness,  in  breadth  of  understanding, 
but  rather  that  we  should  be  first  in  selfishness.  Na- 
tional selfishness  is  the  root  of  the  deteriorating  growth 
which  is  threatening  the  civilization  of  Europe. 

Some  familiarity  with  European  affairs  had  led  me 
to  a  firm  conviction  in  regard  to  the  importance  of 
America  understanding  what  has  befallen  that  great 
mass  of  humanity.  To  recognize  the  unity  of  the 
world  does  not  mean  that  one  must  forswear  his  own 
country.  It  opens  the  way,  instead,  to  a  better  knowl- 
edge of  what  courses  are  for  the  permanent  and  ulti- 
mate welfare  of  our  people.  It  is  because  of  that  be- 
lief that  I  have  ventured  to  add  to  the  amount  of 


PREFACE  y 

printed  matter  in  regard  to  Europe  which  has  already 
become  so  voluminous  that  no  student,  however  in- 
dustrious, could  encompass  more  than  a  small  part 
of  it. 

In  undertaking  an  economic  study  of  the  situation 
growing  out  of  the  War  and  the  Peace,  I  have  tried 
to  approach  the  subject  from  a  constructive  point  of 
view.  Merely  to  diagnose  the  ills  with  which  Europe 
is  afflicted  is  of  no  great  service  unless  some  practical 
suggestion  can  be  made  which  will  arrest  further 
deterioration.  I  believe  that  as  America  comes  to 
understand  the  European  situation  better,  she  will  see 
that  rehabilitation  is  necessary.  We  can  look  at  Europe 
more  objectively  than  any  European  can.  There  is  the 
most  pressing  need  for  developing  comprehensive 
plans  to  put  dislocated  machinery  in  order,  and  to  set 
curative  forces  in  motion. 

The  problem  is  not  one  that  is  practically  remote 
from  us.  It  is  a  far  more  impractical  course  for  us 
to  maintain  our  isolation  than  it  would  be  for  us  to 
assume  a  really  great  role  of  leadership.  A  narrowly 
selfish  attitude  will  be  disastrous  to  our  own  material 
welfare.  But  if  we  are  to  be  selfish,  let  us  be  intelli- 
gently selfish.  That  demands  an  understanding  of 
Europe,  and  a  realization  that  we  are  inextricably  in- 
volved in  world  affairs. 

It  has  been  with  the  hope  of  making  some  small  con- 
tribution toward  a  better  apprehension  of  the  present 


vi  PREFACE 

European  problems  that  this  book  was  undertaken. 
My  conclusions  have  been  aided  by  a  great  number  of 
persons  who  are  importantly  related  to  the  responsible 
work  of  directing  government  action.  Without  ex- 
ception, I  found  government  officials  prepared  to  dis- 
cuss frankly  and  fully  the  problems  which  they  face. 
Practically  every  one  with  whom  I  came  into  contact 
was  anxiously  desirous  that  I  should  acquire  the  ut- 
most knowledge  of  their  difficulties.  Europe  desires 
to  be  understood,  and  perhaps  above  all,  to  be  under- 
stood by  America, 

I  owe  the  most  complete  acknowledgment  to  the 
people  I  met  in  every  country  for  their  efforts  to  make 
clear  the  problems  in  which  they  are  involved. 


CONTENTS 

PART  I :  THE  BACKGROUND 

CHAPTER  PAGE 

**  I    OUR  UNDERSTANDING  OF  EUROPE 3 

^  II    SQUARING   CONCLUSIONS   WITH   ECONOMIC   PRINCI- 
PLES        15 

III  BALANCES  AND  BUDGETS .       .  33 

IV  INFLATION 48 

"V    THE  POISON  TREATIES  OF  PARIS 64 

PART  II :  ECONOMIC  CHAOS 

"Vl    GERMANY  AND  THE  INDEMNITY 87 

VII    ENGLAND 112 

VIII    FRANCE 127 

IX    ITALY 143 

X    AUSTRIA  AND  THE  SUCCESSION  STATES        .       .       .  155 

^  XI      RUSSIA  AND  THE   NEAR  EAST 170 

XII    BULGARIAN  PROBLEMS 189 

PART  III :  RECONSTRUCTION 

XIII  THE  INFLUENCE  OF  THE  LEAGUE  OF  NATIONS    .       .  206 

XIV  THE  ATTITUDE  OF  LABOR 222 

XV    REPAIRING  EXCHANGES 237 

*  XVI    THE  ALLIES'  DEBT  TO  THE  UNITED  STATES      .       .  259 

XVII    PAYMENT  AND  REHABILITATION 276 

XVIII    AMERICA'S  RESPONSIBILITIES    ......  297 


PARTI 
THE  BACKGROUND 


CHAPTER  I 
OUR  UNDERSTANDING  OF  EUROPE 

WHATEVER  else  this  book  may  prove  to  be,  it  is  not 
the  closet-musings  of  an  economist.  It  has  for  a 
background  over  four  months'  travel  through  fifteen 
European  countries,  months  including  August,  Sep- 
tember, October,  November,  1921.  Its  shortcomings 
will  not  be  on  account  of  the  lack  of  opportunity  for 
observation,  nor  lack  of  contact  with  responsible  gov- 
ernment ministers,  financiers,  industrialists,  and  labor 
leaders  of  Europe. 

My  aim  has  been  to  go  a  step  beyond  a  journalistic 
report  on  the  immediate  conditions.  As  a  matter  of 
fact,  accurate  description  of  the  superficial  aspect  of 
European  affairs  at  the  moment  would  be  misleading. 
The  structure  of  social  and  economic  life  in  Europe 
is  standing  on  insecure  foundations.  Outwardly 
there  are  some  obvious  signs  of  its  insecurity  of  base, 
but  on  the  whole  the  casual  traveler  will  find  Europe 
presenting  a  better  aspect  than  it  has  at  any  other 
time  since  the  armistice. 

To  test  foundations  is  more  difficult  than  to  ascer- 
tain if  a  roof  needs  shingling.  That  partially  ac- 
counts for  the  variety  of  views  with  which  travelers 

3 


4  WHAT  NEXT  IN  EUROPE? 

in  Europe  have  returned  to  America.  Indeed,  it  ac- 
counts for  the  failure  of  Europe  to  see  itself  in  a 
clear  light,  although  in  that  respect  Europe  has  come 
to  understand  its  own  situation  far  more  clearly  in 
the  last  two  years.  The  greatest  progress  that  has 
been  made  in  Europe  since  the  armistice  has  been  a 
progress  toward  clearness  in  economic  vision,  although 
real  clarity  of  economic  thought  is  still  confined  to  a 
small  minority. 

In  this  new  survey  of  European  conditions,  fifteen 
countries  were  visited — England,  Germany,  Czecho- 
slovakia, Austria,  Switzerland,  Italy,  Greece,  Turkey, 
Bulgaria,  Jugo-Slavia,  Hungary,  Poland,  Holland, 
Belgium  and  France,  in  the  order  named.  During 
the  tour  we  returned  for  the  second  time  to  Austria, 
Germany  and  England. 

In  all  these  countries,  I  found  ample  opportunity 
to  discuss  conditions  with  the  heads  of  governments 
and  with  responsible  government  ministers.  Bankers, 
financiers  and  great  industrialists  were  of  course  easy 
to  meet.  Labor  leaders  had  to  be  sought  out  but  were 
easy  of  access.  In  the  main,  they  were  extremely 
well  informed  and  had  an  intelligent  understanding 
of  both  the  social  and  economic  aspects  of  the  situa- 
tion. 

Another  source  of  information,  from  which  came 
an  intensely  interesting  light  upon  conditions,  was  the 
Americans  who  are  at  work  in  Europe.  The  various 


OUR  UNDERSTANDING  OF  EUROPE         5 

welfare  projects  which  America  has  undertaken  on 
a  great  scale  and  with  amazing  efficiency  have 
brought  a  new  type  of  American  into  the  European 
picture,  a  type  which  on  the  whole  causes  great  sat- 
isfaction. From  Washington  Irving  on,  we  have  had 
many  observers  of  the  social  life  of  Europe  who  have 
given  us  literary  impressions,  sometimes  acute  and 
sometimes  superficial.  In  the  present  generation, 
there  have  been  many  business  observers  from  this 
country.  Their  point  of  view  was  usually  circum- 
scribed by  their  personal  interests,  which  as  a  rule 
centered  in  their  attempts  to  sell  something  to  Eu- 
ropean customers. 

The  American  men  and  women  who  during  and 
since  the  war  have  been  engaged  in  helpful  projects 
for  alleviating  the  distress  of  Europe  have  studied 
conditions  from  a  fresh  point  of  view.  Among  these 
Americans,  many  of  whom  have  been  in  Europe  for 
a  number  of  years,  may  be  found  some  of  the  best 
minds  and  the  most  acute  observers  of  European  life 
that  are  to  be  found  anywhere.  Americans  of  this 
type  have  approached  Europe  with  an  objectivity 
that  no  native  European  can  possibly  have. 

I  am  inclined  to  give  the  very  greatest  weight  to 
the  conclusions  reached  by  the  staff  which  has  been 
managing  the  American  Food  Administration,  the 
wonderful  organization  for  which  Herbert  Hoover  is 
largely  responsible.  That  organization  has  literally 


6  WHAT  NEXT  IN  EUROPE? 

saved  the  lives  of  millions  of  European  children.  I 
do  not  use  that  figure  as  an  adjective  but  as  a  sober 
statement  of  fact.  In  carrying  on  that  work,  those 
responsible  for  it  have  had  an  unexampled  opportunity 
to  understand  Europe  and  have  brought  to  its  prob- 
lems minds  broadly  trained  in  social  administration. 
The  results  they  have  accomplished  have  given  to 
America  a  prestige  which  helps  to  open  all  doors  to 
any  intelligent  American  enquirer. 

Opportunity  and  work  of  this  character  has  by  no 
means  been  confined  to  the  American  Food  Adminis- 
tration. Work  of  a  similar  nature  is  being  done  with 
great  effectiveness  by  the  Quakers  and  on  a  smaller 
scale  by  the  Mennonites.  The  Young  Men's  Christian 
Association  and  Young  Women's  Christian  Associa- 
tion are  of  incalculable  benefit  and  their  program  is 
planned  with  great  wisdom.  They  have  never  lost 
sight  of  the  necessity  of  encouraging  youth  through- 
out Europe  to  self -helpfulness.  The  aim  of  these  dif- 
ferent groups  has  been  to  induce  Europe  to  participate 
in  the  responsibility  of  the  work  undertaken,  rather 
than  to  pauperize  people  into  helpless  dependency. 

The  achievement  of  the  American  Red  Cross  since 
the  armistice  has  been  a  valuable  contribution.  The 
efforts  of  the  Near  East  Relief  have  alone  saved  hun- 
dreds of  thousands  of  children.  In  these  widespread 
welfare  efforts  I  doubt  if  America's  left  hand  has 
known  what  her  right  hand  has  done.  I  am  quite 


OUR  UNDERSTANDING  OF  EUROPE         7 

sure  that  few  Americans  understand  the  extent  of 
the  relief  that  has  been  given  and  the  depth  of  Eu- 
ropean appreciation.  Our  altruism  has  served  to 
diminish  old  hatreds  and  antagonisms  and  has  set 
good  impulses  in  motion,  which  have  been  turned  into 
effective  accomplishment  by  these  organizations. 

One  of  the  most  effective  and  least  advertised 
among  all  these  movements  is  the  aid  that  is  being 
given  college  students  in  Central  and  Eastern  Eu- 
rope. The  passion  for  education  which  has  come  with 
the  new  democracy  in  these  countries  is  amazing. 
The  extreme  sacrifices  that  young  men  and  women 
are  making  to  obtain  an  education,  the  almost  in- 
superable difficulties  they  are  facing  and  the  fine  re- 
sult that  a  little  help  in  this  direction  accomplishes 
are  things  that  we  should  better  appreciate.  This  is 
a  field  in  which  our  aid  must  increase  for  there  can 
be  only  one  opinion  as  to  the  value  of  the  results 
attained.  Civilization  cannot  go  forward  without 
educated  youth. 

The  older  American  educational  and  religious  in- 
stitutions in  Europe  have  had  an  even  longer  expe- 
rience in  studying  the  needs  of  the  peoples  among 
which  they  are  established.  They  are  very  generous 
in  giving  one  the  fruits  of  their  observations  and  in 
opening  avenues  of  approach  to  interesting  indi- 
viduals. 

As  I  have  said,  my  investigations  included  Switzer- 


8  WHAT  NEXT  IN  EUROPE? 

land.  My  arrival  was  timed  to  coincide  with  the 
gathering  of  the  League  of  Nations.  To  be  in 
Geneva  then  was  to  be  in  the  midst  of  a  congress  of 
the  whole  world.  No  matter  what  opinion  you  held 
about  the  League,  it  was  impossible  not  to  feel  the 
thrill  that  came  from  looking  down  on  that  assembly 
of  the  representatives  of  forty-eight  nations. 

The  opportunity  of  meeting  these  influential  men 
from  every  important  country  except  the  United 
States  was  unique,  but  it  was  not  all  that  Geneva 
offered.  The  Assembly  itself  was  a  passing  affair. 
The  Secretariat  of  the  League,  the  permanent  execu- 
tive organization,  was  a  rich  mine  of  opportunity  and 
information.  It  appears  to  me  to  be  composed  of 
men  who  had  been  selected  because  of  fitness,  high 
purpose,  and  passionate  enthusiasm  for  human  service. 
Considering  the  fact  that  America  is  not  a  party  to 
the  League,  it  was  surprising  to  find  a  considerable 
number  of  Americans  holding  responsible  positions  in 
that  organization.  The  serious  research  which  the 
League  has  been  carrying  on  for  over  a  year  on  eco- 
nomic and  social  questions  has  grown  into  a  tree  of 
knowledge,  the  fruits  of  which  we  are  free  to  gather. 

America's  contact  with  the  European  situation  in 
another  direction  was  impressive,  and  of  great  aid  in 
gaining  a  true  conception  of  European  affairs.  Our 
diplomatic  and  consular  representatives,  and  the  com- 
mercial attaches  who  represent  the  Department  of 


OUR  UNDERSTANDING  OF  EUROPE         9 

Commerce  seemed  to  me  of  a  new  order  .of  excel- 
lence, particularly  in  central  Europe  and  the  Near 
East.  We  are  represented  in  the  main  by  men  who 
have  an  intelligent  understanding  of  the  conditions 
surrounding  them,  and  who  are  a  credit  to  our 
country. 

I  have  in  times  past  known  American  Embassies 
whose  chief  activities  were  social,  and  whose  interest 
and  comprehension .  of  the  problems  of  the  people 
among  whom  they  were  placed  were  superficial  and 
crude.  That  is  not  the  case  to-day.  The  change  in 
some  measure  is  undoubtedly  attributable  to  a  recog- 
nition in  Washington  of  the  serious  nature  of  the 
duties  of  our  foreign  representatives,  and  the  need 
for  picking  men  for  their  ability,  rather  than  their 
political  service.  But  the  true  reason  is  probably 
deeper  than  that.  It  lies  in  the  unexampled  respon- 
sibility that  representatives  of  our  government  have 
had  in  conducting  relations  in  such  disturbed  and 
novel  situations  as  Europe  presents  to-day. 

I  am  not  a  fresh  tourist  of  Europe.  I  have  had  a 
growing  familiarity  with  the  Continent,  and  what  is 
much  more  important,  with  Europeans,  over  a  period 
of  more  than  thirty  years.  My  trips  have  never  been 
vacations;  usually  they  have  been  opportunities  for 
serious  and  extended  study.  But  in  spite  of  that 
background  of  experience,  I  have  a  feeling  that  dur- 
ing this  particular  tour  I  have  been  on  a  voyage  of 


io  WHAT  NEXT  IN  EUROPE? 

fresh  discovery,  for  I  have  seen  in  rapid  succession 
and  with  new  insight  the  present  altered  aspect  of 
nearly  every  European  State. 

The  impression  of  the  enormous  mass  of  creative 
accomplishment  that  has  accrued  in  two  thousand 
years  of  progressive  civilization  is  overwhelming. 
We  like  to  think  of  America  as  the  "greatest  country 
on  earth."  But  the  richness  of  Europe's  agricultural 
possibilities  would  challenge  the  admiration  of  the 
Mississippi  Valley.  The  extent  of  its  industrial  plants 
would  make  Pittsburgh  take  off  its  hat.  The  superb 
municipal  equipment  of  some  of  its  cities  would  make 
our  civic  enthusiasts  wonder  if  Detroit,  Kansas  City 
or  Los  Angeles  are,  after  all,  the  last  words  in  tlhe 
lexicon  of  municipal  perfection. 

The  material  plant  of  Europe  is  so  impressive  that 
it  leaves  one  with  the  belief  that  nothing  so  splendid 
can  possibly  crumble  into  decay.  But  its  permanence 
will  not  seem  so  certain  if  we  turn  from  the  material 
to  the  human  side  of  life,  and  survey  in  rapid  succes- 
sion a  considerable  part  of  the  peoples  that  make  up 
Europe's  four  hundred  and  forty  millions.  The  com- 
posite picture  of  Europe  that  one  will  gain  cannot 
fail  to  arouse  in  the  depths  of  the  observer's  soul  not 
only  an  awed  realization  of  the  greatness  of  Europe, 
but  a  passion  to  help  save  that  greatness  from  wreck. 

We  have  helped  a  little  with  poultices  and  lotions, 
but  we  have  not  understood  thoroughly  enough  the 


OUR  UNDERSTANDING  OF  EUROPE       n 

problems  that  are  involved  and  the  principles  which 
must  be  applied  to  their  solution. 

I  spent  a  day  with  President  Mazarik  at  his  country 
palace  near  Prague.  Mazarik  is  a  mellow  and  wise 
philosopher,  as  well  as  a  great  statesman.  I  said  to 
him  that  many  of  us  in  America  felt  that  we  did  not 
understand  Europe,  and  lacking  that  understanding 
believed  that  it  would  be  better  for  us  to  keep  out  of 
European  affairs. 

He  replied  that  if  America  does  not  understand 
Europe  it  is  her  first  duty  to  acquire  that  knowledge, 
and  that  lack  of  comprehension  was  not  an  adequate 
excuse  for  America  to  withdraw  from  participation 
in  European  activities.  To  gain  such  an  understand- 
ing, he  admitted,  would  be  a  painful  task,  but  it  was 
nevertheless  a  necessity  for  us  to  make  the  effort. 

He  went  on  to  say  that  material  help  to  Europe 
alone  would  be  of  little  value  unless  it  had  wise  direc- 
tion. It  could  not  have  that  unless  there  is,  back  of 
it,  sympathetic  understanding.  When  a  man  is  in 
trouble  it  is  not  enough  for  another  to  cry  over  his 
distress.  Tears  might  show  sympathy  and  under- 
standing, but  it  is  practical  assistance  that  is  needed. 

Perhaps  here  is  the  keynote  for  America.  Too 
many  of  us  are  idly  saying,  "We  do  not  understand 
Europe."  Some  of  us  are  cherishing  materialistically 
the  idea  of  a  "Little  America,"  which  is  great  only  in 
the  material  sense  that  it  covers  a  continent  and  em- 


12  WHAT  NEXT  IN  EUROPE? 

braces  the  greatest  number  of  people  ever  brought  to- 
gether in  such  economic  strength,  without  political 
barriers  to  hamper  the  interchange  of  their  commodi- 
ties. But  we  cannot  selfishly  withdraw  and  declare 
that  Europe's  distress  is  not  ours.  It  is  well  for  us 
to  beware  of  entangling  foreign  alliances,  but  it  is 
not  well  for  us  to  default  in  our  duty  to  mankind  and 
resign  the  leadership  which  is  rightly  ours.  We  can- 
not evade  the  moral  responsibility  which  we  have 
created  by  our  entrance  into  the  war  and  our  enun- 
ciation of  the  principles  on  which  the  peace  was 
founded. 

I  have  tried  to  make  it  clear  that  the  conclusions  I 
have  expressed  in  this  volume  are  not  merely  personal. 
They  are  the  essence  of  a  great  number  of  interviews 
with  the  responsible  men  of  government,  finance  and 
labor  in  nearly  all  the  countries  of  Europe.  I  have 
conferred  with  most  of  the  prime  ministers  and  chan- 
cellors, with  nearly  all  the  finance  ministers  and  with 
a  host  of  other  influential  persons. 

I  might,  for  example,  quote  at  length  the  views  of 
the  German  Chancellor  Wirth  who,  I  believe,  is  an 
honest,  sincere  and  able  man.  I  could  give  the  con- 
text of  many  interviews  with  Prime  Minister  Schober 
of  Austria.  I  might  write  of  the  long  and  most 
illuminating  exposition  of  Central  European  affairs 
by  the  brilliant  young  statesman  Benes,  the  Prime 
Minister  of  Czecho-Slovakia.  I  could  give  in  detail 


OUR  UNDERSTANDING  OF  EUROPE       13 

long  interviews  with  the  King  of  Bulgaria  and  the 
officials  of  his  government;  with  the  Premier  of 
Greece;  with  the  Grand  Vizier  of  Turkey;  with  the 
highest  officials  of  Jugo-Slavia.  I  might  give  the  re- 
sult of  the  ample  opportunity  I  have  had  to  exchange 
views  with  Mr.  Balfour,  with  Lord  Robert  Cecil, 
Professor  Gilbert  Murray,  Sir  Henry  Strakosh  and  at 
10  Downing  Street.  I  could  relate  the  opinions  ex- 
pressed by  the  Governor  of  the  Bank  of  England,  and 
the  Governors  of  the  Banks  of  France,  Italy  and  the 
Netherlands. 

I  was  with  the  Regent  of  Hungary,  Admiral 
Horthy,  the  day  before  Carl  suddenly  appeared  on 
the  political  horizon  for  probably  the  last  time,  in  his 
dash  to  regain  the  Crown  of  Saint  Stephen.  I  found 
him  one  of  the  most  interesting  personalities  I  met  in 
Europe,  a  man  curiously  resembling  in  many  ways 
our  own  brilliant  Admiral  Bristol,  United  States  High 
Commissioner  at  Constantinople.  I  could  give  a  first 
hand  account  that  would  be  extremely  interesting  of 
the  difficulties  that  Admiral  Bristol  has  encountered 
in  his  relations  with  the  Allies,  and  I  may  say  that 
I  did  venture  to  express  some  direct  opinions  in  re- 
gard to  the  Allies'  course  in  the  Near  East  in  an  inter- 
view at  10  Downing  Street.  I  might  relate  what  was 
said  to  me  by  the  Chief  of  State  of  Poland,  the  heads 
of  government  in  Italy,  or  by  some  of  the  responsible 
ministers  of  France. 


14  WHAT  NEXT  IN  EUROPE? 

I  do  not  propose,  however,  to  attempt  any  such 
transcript  reporting  of  these  conversations.  It  is  not 
possible  to  quote  directly  the  observations,  opinions 
and  conclusions  of  such  men.  They  have  talked  to 
me  in  confidence  and  with  great  freedom.  It  would 
be  improper  and  unfair.  But  the  conclusions  which  I 
shall  present  are  the  composite  of  those  interviews, 
assorted,  weighed  and  emphasized  as  soundly  as  my 
experience  permits  me  to  do. 


CHAPTER  II 

SQUARING   CONCLUSIONS   WITH   ECONOMIC 
PRINCIPLES 

MANY  travelers  have  observed  conditions  in  Europe 
since  the  armistice  of  November,  1918.  Their  reports 
and  the  conclusions  and  predictions  they  have  made 
concerning  the  future  of  economic  events  have  been 
almost  as  varied  as  the  number  of  observers,  though 
they  may  have  seen  the  same  sights,  traveled  through 
the  same  countries,  and  indeed  have  interviewed  the 
same  people.  These  contradictory  opinions  have  by  no 
means  come  entirely  from  untrained  observers.  Many 
of  our  travelers  who  have  studied  Europe  have  been 
shrewd,  experienced  men,  knowing  their  particular 
field  thoroughly  and  weighing  accurately  all  of  the 
factors  involved.  Nevertheless  the  final  conclusions 
even  of  experts  regarding  the  general  economic  future 
of  Europe  have  varied  from  buoyant  and  optimistic 
belief  in  early  recovery,  to  black  predictions  that  Eu- 
ropean civilization  is  at  the  edge  of  an  abyss  which 
may  carry  the  world  into  another  epoch  paralleling 
the  Dark  Ages. 

I  have  given  a  good  deal  of  thought  to  the  causes 
of  this  diversity  in  the  opinions  of  men  who  have 

15 


1 6  WHAT  NEXT  IN  EUROPE? 

studied  the  same  situations.  Some  of  these  observers 
have  expressed  superficial  opinions  that  were  based 
obviously  upon  very  little  sound  data.  But  one  must 
seek  a  deeper  reason  than  that  for  the  lack  of  agree- 
ment among  experienced  men,  including  Europeans 
against  whom  no  charge  of  superficiality  of  knowl- 
edge can  be  laid.  It  seems  to  me  that  this  is  due  to 
the  fact  that  only  a  few  of  them  have  formed  their 
judgments  in  the  light  of  clearly  understood,  funda- 
mental economic  principles.  Unless  they  understand 
these  principles,  the  same  set  of  facts,  presented  to 
two  men  of  different  temperament  will  lead  them  to 
completely  different  interpretations  of  the  situation  of 
Europe. 

This  tendency  to  form  conclusions  based  on  super- 
ficial knowledge,  or  on  the  over  emphasis  of  a  single 
factor,  has  not  been  confined  to  American  observers. 
There  has  been  as  little  sound  application  of  economic 
principles  in  forming  current  European  opinion  as 
has  been  displayed  by  most  of  our  own  travelers. 

In  England,  for  example,  a  group  of  newspapers  is 
engaged  in  a  daily  campaign  which  is  vigorously  at- 
tempting to  convince  the  voters  of  Great  Britain  that 
the  extravagance  of  the  existing  government  is  almost 
the  sole  cause  of  the  acute  economic  and  industrial 
disturbance  in  that  country.  The  increase  in  min- 
isterial salaries,  the  bonuses  paid  to  civil  servants,  the 
expenditures  in  Mesopotamia,  or  any  one  of  a  hun- 


SQUARING  CONCLUSIONS  17 

dred  other  charges  of  governmental  extravagance,  are 
stated  daily  as  the  reason  for  the  idleness  of  two  mil- 
lion men,  the  overwhelming  burden  of  taxation  and 
the  decline  in  trade. 

Another  group  of  English  newspapers,  alarmed  by 
the  decline  in  British  foreign  trade,  has  been  publish- 
ing for  some  time  interviews  with  industrial  man- 
agers. Led  by  editorial  direction  they  have  stated 
that  England  can  no  longer  sell  abroad  the  same 
amount  of  goods  wholly  because  of  the  comparatively 
high  rate  of  exchange  of  the  pound  sterling.  Their 
readers  are  led  to  believe  the  false  doctrine  that  a  de- 
based currency  and  a  low  rate  of  exchange  is  the  open 
door  to  success  in  international  trade.  Such  examples 
of  wholly  erroneous  statements,  of  misplaced  emphasis 
and,  in  general,  of  failure  to  measure  conditions  by 
economic  principles  could  be  endlessly  multiplied. 

Before  attempting  to  examine  the  economic  condi- 
tion of  Europe  it  may  be  worth  while  to  state  some 
of  the  main  principles  on  which  a  sound  judgment  in 
regard  to  the  economic  future  of  a  nation  or  a  group 
of  nations  must  be  founded.  In  presenting  these  eco- 
nomic theories  I  am  aware  that  I  may  be  stating 
obvious  facts  in  too  primary  a  way  to  interest  the 
mature  mind.  But  the  four  gentlemen  chiefly  respon- 
sible for  the  Versailles  Treaty  do  not  seem  to  have 
had  the  least  inkling  of  these  economic  principles,  or 
if  they  had  they  seem  to  have  gone  bravely  ahead 


18  WHAT  NEXT  IN  EUROPE? 

regardless  of  the  consequences  of  neglecting  them. 
Any  one  with  the  least  familiarity  with  European 
conditions  is  constantly  reminded  of  this,  so  that  I  feel 
that  there  is  sufficient  excuse  for  attempting  to  pre- 
sent these  principles  in  a  simple  and  direct  manner. 

The  foundation  of  the  simplest  of  economic  judg- 
ments demands  a  certain  scientific  grasp  of  economic 
laws.  It  has  long  been  my  belief  that  most  of  the 
troubles  of  modern  civilization  have  come  from  what 
may  be  termed  economic  illiteracy.  If  the  world 
could  be  brought  to  a  better  knowledge  of  a  few  eco- 
nomic truths,  the  decisions  made  by  individuals,  by 
corporations,  or  by  nations,  would  be  infinitely 
sounder.  Civilization  would  rest  on  a  firmer  basis. 

Let  us  take  the  problem  presented  by  an  individual 
first  and  then  follow  the  analogy  to  the  more  com- 
plicated example  presented  by  national  and  interna- 
tional affairs.  Suppose  we  want  to  reach  a  sound 
opinion  of  the  economic  future  of  an  individual  man. 
With  as  comparatively  simple  a  problem  as  this  we 
will  fall  into  error;  two  minds  will  reach  widely  dif- 
fering conclusions,  unless  the  problem  is  attacked  with 
some  degree  of  scientific  skill. 

On  the  one  hand  we  will  need  to  study  the  economic 
necessities  of  this  man.  Considering  his  status  in  so- 
ciety, what  for  example  will  be  his  requirements  for 
food,  clothing,  housing  and  education?  On  the  other 
hand  we  must  find  out  what  are  his  present  and  po- 


SQUARING  CONCLUSIONS  19 

tential  resources.  Has  he  financial  means  ?  Are  they 
in  the  form  of  liquid  capital,  or  investments  on  which 
he  may  count  with  varied  degrees  of  certainty  for  a 
continued  income,  or  is  his  capital  fixed  so  that  it 
would  be  difficult  to  realize?  We  must  know  what 
he  owes  and  the  nature  of  those  obligations  and  how 
pressing  they  are. 

We  will  have  to  estimate  his  earning  capacity,  to 
know  what  is  his  skill,  what  service  he  can  contribute, 
and  whether  or  not  it  is  of  a  character  that  is  likely 
to  be  always  in  demand.  We  will  want  to  know  what 
his  earnings  will  be  when  he  is  fully  employed,  and 
whether  the  general  conditions  surrounding  him  are 
such  that  full  employment  is  probable.  It  is  impor- 
tant that  we  should  know  something  of  his  tempera- 
ment and  of  his  character.  In  addition  we  must  know 
surrounding  economic  conditions.  No  matter  what 
the  position  of  the  individual  may  be,  he  is  a  part 
of  the  larger  environment  in  which  he  is  placed. 

This  may  seem  a  very  obvious  statement.  But  the 
same  general  principles,  somewhat  enlarged  to  fit  a 
wider  and  considerably  more  complicated  case,  must 
be  applied  in  determining  the  economic  outlook  of  a 
Corporation.  We  will  want  to  know  what  is  the  capi- 
tal of  the  corporation  and  the  way  in  which  that 
capital  has  been  invested;  how  much  of  it  is  liquid, 
how  much  in  the  form  of  stocks  of  raw  or  manufac- 
tured material,  and  how  much  is  in  fixed  forms  of 


20  WHAT  NEXT  IN  EUROPE? 

property.  We  must  find  out  the  amount  of  the  debt 
of  the  corporation  and  its  nature.  Then  we  will  have 
to  study  the  type  of  business  in  which  it  is  engaged, 
and  form  our  estimates  concerning  the  character  of 
its  management  and  the  employees.  We  must  have 
facts  to  determine  the  extent  and  nature  of  the  labor 
supply  upon  which  it  can  draw.  In  addition  to  this 
information  we  must  investigate  the  general  business 
situation  as  it  relates  to  the  affairs  of  this  particular 
corporation. 

All  this  is  a  comparatively  simple  matter,  and  in- 
vestigations of  this  sort  are  being  made  daily,  though 
with  only  a  fair  degree  of  success,  by  bankers,  mer- 
chants and  investors. 

Now  we  come  to  a  far  more  complicated  problem, 
but  one  that  after  all  is  not  fundamentally  dissimilar 
from  that  of  determining  the  position  of  an  individual 
or  of  a  corporation.  In  considering  Europe  the  first 
problem  is  to  gauge  the  economic  outlook  of  indi- 
vidual nations.  But  beyond  that  there  is  the  perilous 
and  complex  situation  of  a  whole  continent  to  be 
studied,  a  continent  made  up  of  some  twenty-three 
nations,  each  with  its  political  sovereignty,  its  indi- 
vidual fiscal  and  currency  problems  and  its  tariff 
boundaries;  and  we  must  not  forget  that  each  nation 
is  dependent  upon  some,  at  least,  of  the  others  for 
important  factors  of  its  economic  life. 

Even  by  applying  to  the  best  of  human  ability  the 


SQUARING  CONCLUSIONS  21 

soundest  of  economic  laws,  we  could  not  predict  with 
certainty  the  outcome  of  so  involved  a  social  and 
financial  complex  as  Europe  presents  to-day.  But  it 
is  obvious  that  our  conclusions  will  be  of  little  value 
unless  we  are  determined  to  measure  our  facts  by 
them. 

In  the  preliminary  survey  of  a  nation's  economic 
position  there  are  three  vital  questions  that  must  be 
answered. 

First:  What  is  the  nation's  food  situation?  Are 
its  demands  supplied  by  domestic  production,  or 
must  it  largely  import  in  order  that  its  people  may 
live,  as  is  the  case  with  several  highly  industrialized 
countries  ? 

Second:  What  are  the  facts  in  regard  to  the  coun- 
try's foreign  trade  balance?  Is  it  able  to  export  in 
amounts  sufficient  to  pay  for  the  necessities  that  it 
must  import? 

Third:  What  is  the  condition  of  the  domestic 
budget?  Is  the  government  spending  more  than  it 
is  raising  from  taxation?  Can  its  expenditures  be 
reduced,  and  are  they  likely  to  be  reduced?  Can  its 
income  be  increased,  and  is  that  politically  probable? 
How  is  the  deficit  made  up  if  there  is  no  immediate 
way  perceivable  of  balancing  the  budget? 

Let  us  take  up  these  three  enquiries  in  a  little  more 
detail,  and  see  what  information  is  necessary  in  order 
to  solve  the  problems  involved. 


22  WHAT  NEXT  IN  EUROPE? 

Food  supply  is  obviously  an  elemental  fact.  No 
matter  what  are  the  conditions  of  government,  of 
public  economy,  of  currency,  or  industry,  it  underlies 
them  all.  In  a  sense  it  is  more  important  than  all  the 
other  factors  together.  If  a  country  does  not  produce 
enough  food  for  it'j  needs,  it  must  import.  In  order 
to  import  it  must  sell  its  raw  products  or  manufac- 
tured goods  to  other  nations. 

We  must,  then,  first  examine  in  some  detail  what 
the  country's  food  requirements  are  compared  with 
its  domestic  production.  If  the  production  within 
its  borders  is  ample  in  amount  and  sufficiently  wide 
in  variety,  well  and  good;  such  a  people  can  stand  a 
vast  amount  of  mismanagement  in  government,  cur- 
rency and  finance  and  still  at  least  exist.  On 
the  other  hand,  if  the  domestic  production  is  in- 
sufficient, or  is  so  lacking  in  variety  that  certain  food 
imports  are  absolutely  essential,  we  must  see  if  the 
exports  can  equal  the  essential  imports  in  value. 

The  demand  for  food  is  perpetual  and  insistent. 
It  manifests  itself  in  an  acute  form  at  breakfast  and 
it  recurs  at  noon  and  at  evening.  There  are  no  days 
of  grace.  The  supply  must  be  constant,  uninterrupted 
and  equal  to  physical  necessity.  The  insistency  of  the 
problem  is  not  always  recognized  by  observers. 
Through  the  neglect  of  this  factor  unsound  conclu- 
sions are  based  on  the  theory  that  in  time  a  country's 
industries  can  be  so  improved,  or  its  foreign  markets 


SQUARING  CONCLUSIONS  23 

become  so  receptive  that  it  will  be  able  to  balance  its 
imports  and  exports.  The  economists'  convenient 
phrase  "in  time,"  however,  does  not  apply  to  food. 
It  should  be  kept  in  mind  that  not  a  bushel  of  wheat, 
not  a  pound  of  sugar,  not  a  carcass  of  meat  can  be 
imported  into  a  country  unless  in  one  way  or  another 
it  is  paid  for  in  foreign  funds  as  it  crosses  the  bor- 
der. Usually  that  payment  is  made  indirectly  by  the 
export  of  goods.  If,  for  the  time  being,  that  is  im- 
possible, there  are  other  more  or  less  temporary  ways 
in  which  it  can  be  made,  but  it  must  be  provided  for 
with  the  same  regularity  that  the  demand  for  meals 
recurs. 

The  balance  created  by  the  export  of  goods  with 
which  to  pay  for  the  import  of  food  may  be  aug- 
mented by  the  earnings  of  a  mercantile  marine  that 
performs  a  service  for  a  foreign  country,  paid  for  in 
its  currency.  The  earnings  of  an  international  insur- 
ance business,  foreign  cable  tolls  and  other  items  of 
that  character  fall  also  into  the  invisible  trade  bal- 
ance. In  the  case  of  nations  like  England,  a  large 
income  may  still  be  derived  from  domestically  owned 
foreign  investments,  or,  as  in  Italy,  nationals  who  are 
temporarily  or  permanently  living  abroad  may  remit 
large  sums.  The  expenditure  of  foreign  tourists  in 
some  countries  forms  a  substantial  item  in  this  in- 
visible trade  balance.  There  may  be  a  considerable 
investment  of  foreign  capital  in  a  country.  As  a 


24  WHAT  NEXT  IN  EUROPE? 

temporary  expedient,  there  are  other  forms  of  obtain- 
ing foreign  credit  from  the  floating  of  Government 
loans  or  the  sale  of  corporate  securities,  down  to  small 
temporary  mercantile  credits  granted  by  foreign  ex- 
porters. 

In  normal  times  before  the  old  world  came  to  an 
end,  the  foregoing  list  would  have  included  the  main 
items  entering  into  the  credit  side  of  a  nation's  for- 
eign trade  balance.  In  this  new  world  about  which 
we  now  have  so  much  to  learn  there  have  developed 
two  other  factors  that  for  the  time  being  may  become 
more  important  than  any  of  those  that  have  been 
mentioned. 

First  in  importance  is  the  speculative  purchase  and 
acquisition  of  the  currency  of  a  nation  by  foreigners. 
I  do  not  mean  the  literal  purchase  of  paper  currency 
to  be  exported  and  held  by  the  foreign  purchaser, 
although  there  are  several  European  examples  of  that 
type  of  transaction  which  have  run  into  billions. 
When  a  country's  currency  begins  to  depreciate  and 
appears  to  be  selling  materially  below  its  nominal  par, 
there  is  a  tendency  to  purchase  exchange  as  a  specu- 
lation. That  is,  a  bank  balance  is  bought  in  that 
country  in  the  hope  that  exchange  quotations  will 
later  become  more  nearly  normal  and  it  can  be  re- 
sold at  a  profit. 

In  a  later  chapter  on  Germany  I  will  discuss  at 
greater  length  the  astounding  figures  which  specula- 


SQUARING  CONCLUSIONS  25 

tion  in  the  German  Mark  reached.  When  I  say  that 
the  total  stands  somewhere  between  sixty  and  eighty 
billion  marks,  a  figure  so  bewildering  that  when  it 
first  came  to  my  knowledge  it  seemed  utterly  fan- 
tastic, it  may  be  recognized  how  important  this  factor 
of  foreign  exchange  speculation  has  become. 

Another  factor  that  was  of  little  importance  before 
the  war  but  which  has  come  to  be  of  great  interest 
in  our  new  world  of  finance,  is  what  has  been  aptly 
termed  the  flight  of  capital  from  a  country.  When 
paper  currency  is  thrown  in  on  the  debit  side  of  an 
unbalanced  budget  and  the  outlook  for  the  deprecia- 
tion of  the  value  of  a  country's  currency  becomes 
clear,  people  who  have  economic  foresight  and  whose 
means  are  liquid  endeavor  to  get  their  capital  out  of 
that  country. 

Governments  have  resorted  to  severe  measures  to 
prevent  this,  but  liquid  capital  has  almost  the  char- 
acteristic of  liquid  mercury  in  finding  some  crevice 
for  escape  if  it  feels  it  is  in  danger.  Sometimes  in  its 
confusion  and  distress  it  is  moved  first  to  one  country 
and  then  to  another.  There  have  been  enormously 
important  items  which  are  invisible  and  immeas- 
urable injected  into  qvery  country's  foreign  trade 
balance  representing  such  a  flight  of  capital.  It  com- 
plicates all  economic  statistics  and  leaves  paradoxes 
of  international  accounts  that  seem  to  offer  no  ex- 
planation of  how  they  are  balanced. 


26  WHAT  NEXT  IN  EUROPE? 

Let  it  be  remembered,  however,  that  if  we  could 
only  know  all  the  facts  every  international  trade  bal- 
ance would  present  as  perfect  an  agreement  on  the 
debit  and  credit  side  as  do  the  books  of  a  well 
ordered  bank.  The  smallest  item  of  the  international 
grocery  bill,  the  smallest  import  from  one  country 
into  another,  must  have  the  means  of  payment  pro- 
vided in  some  one  of  the  several  ways  I  have  sug- 
gested before  it  can  cross  the  border. 

The  food  problem  is  not  quite  so  simple  as  it  might 
seem,  when  it  is  defined  as  merely  embracing  the 
question  of  whether  a  nation's  domestic  production 
of  food  is  equal  to  its  necessities.  A  country  may 
export  certain  food  products  and  at  the  same  time 
insistently  demand  the  import  of  other  varieties. 
Czecho-Slovakia,  for  example,  has  a  great  excess  of 
sugar  but  a  deficiency  of  almost  every  other  food 
requirement.  We  must  therefore  study  the  available 
market  for  the  country's  food  exports  as  well  as  its 
necessities  for  import. 

If  there  is  a  surplus  of  food  raised,  as  is  the  case 
with  the  countries  of  Eastern  Europe,  we  must  exam- 
ine the  opportunities  for  efficient  exportation.  There 
may  be  peculiar  difficulties  obstructing  a  free  move- 
ment of  exports  which  will  reduce  a  potentially  large 
export  to  nominal  figures. 

It  will  not  be  a  reliable  guide  to  take  pre-war 
figures  of  food  requirements.  In  the  old  days  of 


SQUARING  CONCLUSIONS  27i 

comparatively  ample  supply,  food  requirements  may 
have  been  much  larger  than  a  nation  needs  to-day. 
Its  belt  has  been  drawn  in  and  the  experience  of 
seven  years  of  restriction  has  fixed  new  standards. 
On  the  other  hand,  pre-war  figures  of  production 
must  be  viewed  with  the  same  reserve. 

It  has  been  sharply  demonstrated  in  some  countries 
that  the  peasant  must  have  a  sufficient  inducement 
if  he  is  to  do  his  utmost.  There  are  notable  cases  of 
great  districts  capable  of  extensive  food  production 
where  the  amount  produced  has  declined  tremen- 
dously. This  can  be  traced  to  various  causes.  Many 
of  the  European  governments  for  example  have 
sought  to  keep  the  price  of  food  products  down  by 
controlling  prices.  Several  of  the  countries  having  a 
deficient  domestic  grain  supply  have  made  all  pur- 
chases of  foreign  grain  through  the  government. 

The  government  has  imported  wheat,  for  example, 
and  has  paid  for  it  at  the  gold  price  in  the  world's 
market.  In  order  to  alleviate  domestic  conditions  and 
perhaps  to  quiet  political  unrest,  the  wheat  bought  at 
gold  rates  is  sold  at  a  much  lower  price  for  paper. 
By  government  subsidy  the  price  of  bread  is  kept 
within  the  means  of  the  ordinary  person.  This  course 
has  sometimes  had  a  secondary  effect,  however.  The 
imported  grain  was  sometimes  sold  at  a  price  that 
was  so  low  that  the  grain  domestically  produced  could 
not  compete  with  it.  This  artificially  depressed  price 


28  WHAT  NEXT  IN  EUROPE? 

in  some  cases  has  acted  severely  in  discouraging  the 
industry  of  the  peasants  and  in  reducing  domestic 
production. 

Another  factor  that  has  in  many  cases  had  a  serious 
effect  on  food  production  has  been  the  discouragement 
to  the  peasant  which  followed  the  rapidly  declining 
value  of  the  currency  in  which  he  was  paid.  In  a 
nation  where  inflation  has  been  going  on  at  a  head- 
long pace,  a  peasant  finds  that  the  value  of  the  paper 
money  for  which  he  sold  his  grain  may  have  shrunk 
to  half  of  what  it  was  when  he  disposed  of  his  crop. 
This  has  developed  a  disposition  either  to  produce 
less,  or  to  hoard  what  was  produced.  Naturally,  the 
peasant  refuses  to  part  with  the  fruit  of  his  labor  for 
what  he  regards  as  worthless  money,  or  for  a  cur- 
rency that  is  declining  rapidly  in  value.  This  hoard- 
ing of  grain  has  assumed  large  proportions  in  Aus- 
tria and  some  parts  of  Russia. 

The  depreciation  of  currency  has  at  the  same  time 
been  a  discouragement  to  planting  the  new  crop.  On 
the  whole,  however,  it  must  be  observed  that  the  peas- 
ants have  been  extremely  prosperous.  They  have  been 
able  to  pay  off  their  indebtedness  in  a  depreciated  cur- 
rency. They  could  not  spend  much  and  have  always 
had  something  to  sell  that  was  in  demand  at  an  ever- 
increasing  price.  As  a  result  there  are  vast  amounts 
of  paper  currency  securely  hidden  in  millions  of 
peasant  homes. 


SQUARING  CONCLUSIONS  29 

Other  causes  have  helped  to  reduce  old-time  totals 
of  agricultural  production.  I  would  not  have  antici- 
pated this  result  from  the  enforced  breaking  up  of 
large  agricultural  holdings  into  small  peasant  proper- 
ties. But  I  find  a  great  deal  of  testimony  to  prove 
that  such  a  change  has,  as  a  rule,  been  detrimental 
to  production. 

The  farming  of  the  large  estates  that  existed  in 
Roumania,  Hungary  and  to  a  lesser  degree  in  Czecho- 
slovakia was  on  the  whole  efficiently  done.  The 
peasants  were  forced  to  a  considerable  degree  of  ac- 
tivity, the  management  was  intelligent  and  there  was 
sufficient  capital  to  provide  fairly  efficient  machinery. 
The  methods  employed  on  these  great  estates  from 
the  point  of  view  of  agricultural  science  were  prob- 
ably open  to  criticism.  There  was  of  course  an  im- 
portant social  and  political  question  involved  in  these 
great  property  holdings.  But  the  first  result  of  cut- 
ting them  up  into  small  peasant  properties  has  been 
this  lessening  of  production. 

As  a  rule,  the  new  peasant  owner  has  lacked  capital. 
He  finds  himself  with  inefficient  machinery  and  with- 
out sufficient  livestock.  The  old  proprietors  claim  that 
he  no  longer  exerts  himself  but  is  satisfied  to  meet 
his  own  food  requirements  and  produce  very  little 
beyond  that.  The  pre-war  figures  showing  production 
are  obviously  not  the  standard  of  Europe's  present 
home  produced  food  supply. 


30  WHAT  NEXT  IN  EUROPE? 

In  addition  to  this  decrease  in  production,  the  food 
problem  of  the  various  countries  is  complicated  by  the 
astonishing  number  of  obstacles  that  are  interposed 
between  the  wants  of  one  people  and  the  over- 
production of  another.  Transportation  is  one  of  the 
most  important  of  these  obstacles.  It  is  one  of  the 
most  obvious  factors  to  be  taken  into  account  in  con- 
sidering food  problems. 

It  is  true  that  on  the  whole  the  rates  of  transpor- 
tation are  exceedingly  low.  Practically  all  railroads 
are  government  owned  and  the  tariffs  are  fixed  by  th& 
government.  In  those  countries  where  the  currency 
has  been  depreciating,  and  that  includes  of  course  al- 
most every  nation  in  Europe,  railroad  rates  have  not 
advanced  as  rapidly  as  currency  has  declined.  Trans- 
portation, therefore,  has  come  to  be  about  the  cheap- 
est thing  in  Europe.  That  situation  has  almost  uni- 
versally resulted  in  a  deficit  in  the  operation  of  rail- 
roads or  other  public  utilities.  In  the  case  of  some 
nations  the  railway  deficit  has  reached  an  enormous 
figure.  The  rates  have  been  kept  so  low  that  as  far 
as  railroad  transportation  is  a  component  in  the  cost 
of  industrial  or  agricultural  production  they  consti- 
tute practically  a  subsidy  to  both.  The  low  rate  of 
passenger  fares,  too,  has  led  to  an  enormous  increase 
in  travel. 

While  the  rates  are  depressed  service  is  naturally 
not  efficient.  But  on  the  whole  there  is  great  im- 


SQUARING  CONCLUSIONS  31 

provement  to  be  noted  in  the  last  two  years,  and  to- 
day in  European  countries  the  inefficiency  of  railroad 
transportation  is  not  a  serious  handicap  to  domestic 
commerce.  On  the  other  hand,  railroad  transporta- 
tion between  certain  countries  has  become  almost 
impossible.  Tracks,  locomotives  and  cars  are  not 
sufficient  to  secure  a  quick  and  certain  movement  of 
produce  from  one  country  to  another. 

An  almost  insurmountable  difficulty  has  arisen  on 
certain  frontiers.  The  systems  of  railway  transpor- 
tation were  owned  by  the  various  pre-war  govern- 
ments. When  the  Treaty-makers  of  Versailles  redrew 
the  map  of  Europe  they  made  a  sad  wreck  of  the 
operation  of  trunk  lines  of  transportation.  Take, 
for  example,  the  situation  in  the  states  which  con- 
stituted the  old  Austrian  Empire.  These  roads  were 
the  property  of  the  old  government.  When  the  Em- 
pire was  cut  up  into  a  number  of  new  and  quite  inde- 
pendent nations,  no  arrangement  for  the  division  of 
the  motive  power  and  rolling  stock  of  the  railroads 
was  made.  None  of  the  countries  concerned  knew  ex- 
actly what  proportion  it  could  claim  of  the  total  num- 
ber of  cars  and  locomotives. 

The  result  was  disastrous.  If  a  car  or  locomotive 
crossed  the  border  from  one  country  to  another,  it  was 
probable,  or  rather  it  was  practically  certain  that  it 
would  never  be  returned.  This  situation  for  a  time 
built  an  effective  wall  against  trade  between  these  new 


32  WHAT  NEXT  IN  EUROPE? 

states.  The  railroad  would  not  send  a  carload  of 
grain  across  the  border  if  the  car  in  which  it  was 
carried  would  never  be  sent  back  to  the  country  that 
owned  it.  The  same  situation  existed  until  recently 
with  water  craft  whose  former  routes  now  cross  new 
national  boundaries. 

Fortunately,  an  agreement  has  been  reached  after 
long  examination  and  many  hearings  which  solves 
most  of  the  problems  of  water-borne  commerce  so  far 
as  they  relate  to  a  division  of  barges  and  vessels  be- 
tween the  different  nationalities.  The  division  of  rail- 
way equipment  is  making  slower  progress.  There  are 
still  some  borders  where  no  traffic  passes  unless  it  is 
changed  from  one  car  to  another.  Gradually  these 
defects  are  being  remedied,  but  for  a  long  time  to 
come  certain  frontiers  will  be  a  handicap  to  free 
transportation. 

Before  leaving  the  problem  of  food  supply,  there 
are  other  considerations  which  may  be  worth  examina- 
tion. We  ought  to  look  somewhat  into  future  possi- 
bilities, to  see  if  perhaps  a  country  can  augment  its 
own  production  to  any  extent.  Agriculture  may  have 
been  neglected  because  in  the  old  world  of  free-moving 
commerce  industry  offered  greater  reward.  It  may 
be  that  agricultural  methods  are  backward.  With  a 
return  to  the  land  and  after  better  machinery  and 
better  seed  have  been  introduced  we  might  look  for- 
ward to  increased  production. 


CHAPTER  III 
BALANCES  AND  BUDGETS 

WHEN  food  has  once  been  produced  and  the  peasant 
has  been  induced  to  part  with  it  in  exchange  for  the 
depreciated  paper  money  of  his  country,  one  might 
hope  that  outside  those  limitations  a  freedom  of  com- 
mercial movement  might  be  anticipated.  But  even 
after  the  grain  has  been  loaded  for  transport  and 
even  after  the  difficulties  of  passing  intervening  na- 
tional borders  have  been  solved,  there  still  remain 
great  obstacles  to  the  movement  of  commerce. 

There  is  another  vital  problem  that  is  perhaps  the 
most  fundamental  of  all.  By  what  means  is  the  pros- 
pective customer  to  pay  for  the  produce?  Every  na- 
tion with  deficient  food  supply  must  provide  an  ex- 
change to  pay  for  its  food.  It  can  hardly  be  repeated 
too  often  that  every  importation  of  food  must  be  paid 
for,  either  at  once  through  the  exchange  of  manufac- 
tured goods,  or  indirectly  by  the  creation  of  credits. 
These  credits  are  created  by  investments  from  abroad, 
by  the  exportation  of  gold,  or  by  some  of  the  invisible 
means  by  which  a  nation's  foreign  trade  is  balanced. 
The  people  of  the  country  may  be  prosperous,  the 
banks  may  be  strong  and  government  finances  in 

33 


34  WHAT  NEXT  IN  EUROPE? 

order.  Nevertheless,  that  country  must  have  some- 
thing to  send  out  into  the  commercial  world  in  order 
to  create  the  credit  for  the  food  that  must  be  paid 
for  in  foreign  money. 

The  situation  of  Switzerland  to-day  is  a  good  ex- 
ample. Here  is  a  country  with  a  larger  percentage  of 
gold  behind  its  currency  than  is  held  in  the  vaults  of 
the  Federal  Reserve  Banks  to  protect  our  own  bank 
notes.  The  government  is  excellent,  the  people  are 
well-to-do,  but  Switzerland  must  import  four-fifths  of 
her  food.  Her  demand  for  it  is  incessant  and  she  must 
find  ways  for  its  purchase  in  terms  of  foreign  credit 
before  the  food  which  is  necessary  for  her  very  life 
can  cross  the  border.  Formerly  her  chief  means  of 
payment  has  been  the  export  of  luxuries.  She  has 
made  watches  and  embroideries  and  other  articles 
classed  as  luxuries.  The  market  for  luxury  goods  has 
become  extremely  limited,  and  as  a  result  Switzerland 
finds  herself  in  a  most  embarrassing  situation.  Her 
financial  strength  has  kept  her  exchange  at  a  high 
figure  and  she  therefore  offers  for  the  moment  an 
unfavorable  market  in  which  to  buy.  She  has  been 
temporarily  fortunate  perhaps  in  being  the  principal 
financial  asylum  in  Europe  towards  which  the  flight 
of  capital  from  other  countries  has  been  directed.  For 
the  time  being  that  has  been  a  most  important  factor 
in  balancing  her  foreign  trade. 

One  might  recite  many  other  minor  difficulties  in 


BALANCES  AND  BUDGETS  35 

the  path  of  a  free  movement  of  commerce.  The  old 
organization  has  broken  down.  Merchants  can  no 
longer  count  with  some  degree  of  certainty  upon  the 
future.  They  are  no  longer  able  to  augment  their 
own  capital  by  making  bank  loans  so  that  the  peasant 
can  be  paid  and  the  grain  moved  to  a  point  where  the 
grain  merchant  can  in  turn  liquidate  his  obligations. 
The  stream  of  commerce  which  once  flowed  with  a 
placid  regularity  has  become  turbulent,  obstructed  and 
rocky.  Men  of  business  have  become  involved  in  innu- 
merable risks. 

All  commerce  must  pass  through  the  speculative 
whirlpool  of  fluctuating  exchanges  so  that  the  mer- 
chant never  knows  what  the  money  he  contracts  to 
receive  to-day  will  be  worth  to-morrow.  He  finds  that 
an  indefinite  time  is  consumed  in  moving  his  goods. 
He  learns  that  the  credit  of  his  customers  can  no 
longer  be  depended  upon,  and  that  consignments  of 
produce  cannot  be  made  with  the  assurance  that  pay- 
ment will  follow  their  arrival  and  distribution. 

All  future  possibilities  of  relieving  the  necessity  for 
these  foreign  credits  by  better  methods  of  agriculture, 
and  even  by  an  adjustment  of  industry  and  food  pro- 
duction to  make  economically  isolated  countries  more 
independent  of  outside  help,  are  worth  studying.  A 
country,  however,  may  be  in  a  critical  position  because 
of  the  urgency  of  its  needs.  If  it  lacks  the  means  for 
obtaining  foreign  credits  and  faces  the  necessity  for 


36  WHAT  NEXT  IN  EUROPE? 

immediate  food  imports,  the  future  prospects  for  in- 
creased production  cannot  be  given  much  weight. 

After  a  thorough  examination  of  a  nation's  food 
requirements,  its  production,  and  its  hope  of  a  sat- 
isfactory trade  balance,  I  would  next  turn  to  the 
study  of  the  internal  budget.  A  brief  glance  will  show 
whether  that  budget  is  balanced  by  taxation,  and  if 
not  whether  the  deficit  is  being  made  up  by  loans. 
If  a  country  spends  more  than  it  raises  in  taxation, 
the  resulting  deficit  can  be  met  only  in  two  ways.  For 
the  time  being  it  may  bridge  over  its  difficulty  by  mak- 
ing Treasury  loans  for  short  or  long  terms.  It  may 
be  unable  to  do  that,  or  it  may  not  have  the  political 
strength  of  purpose  to  attempt  it  earnestly.  If  not, 
there  is  another  road  which,  in  the  beginning,  seems 
easy  and  pleasant  but  which  inevitably  leads  straight 
to  financial  hell.  Any  country  that  meets  the  deficit 
in  its  domestic  Kudget  by  the  continued  issue  of  addi- 
tional paper  money,  which  for  the  time  being  has  no 
redemptive  relation  to  gold,  has  started  on  an  appalling 
road  over  which  many  European  nations  are  now 
traveling. 

In  examining  the  national  post-war  budget,  we  are 
certain  to  find  some  items  that  would  be  new  to  our 
pre-war  experience,  although  there  will  also  be  many 
old  friends  on  the  debit  side.  Large  military  expendi- 
tures are  still  the  order  of  the  day,  excepting  in  Aus- 
tria and  Germany.  It  makes  one's  heart  sick  to  ex- 


BALANCES  AND  BUDGETS  37 

amine  the  relative  expenditures  for  military  and  edu- 
cational establishments  in  Europe.  However,  that  is 
an  old  story  and  one  from  which  we  could  draw  dis- 
heartening conclusions  even  from  our  own  budget. 

Governmental  extravagance  for  civil  service  is  on 
a  new  scale  of  magnitude.  The  new  republican  states 
as  a  rule  seemed  unable  to  cope  with  civil  service  prob- 
lems and  in  nearly  all  cases  the  number  of  employees, 
especially  on  the  government-owned  railways,  has  enor- 
mously increased.  The  difficulty  of  the  new  govern- 
ments in  cutting  down  the  personnel  in  government 
service  is  especially  apparent  in  Austria.  The  civil 
employees  of  the  old  Austrian  Empire  were  almost 
wholly  German  and  were  forced  back  from  the  dis- 
membered parts  of  the  Empire  into  Vienna.  Neverthe- 
less, they  have  been  kept  on  the  public  payroll.  They 
are  retained,  it  is  true,  at  wages  that  are  mere  pittances, 
but  out  of  a  population  of  six  and  a  half  millions 
Austria  finds  herself  with  two  hundred  and  sixty  thou- 
sand civil  employees.  At  present  she  is  politically  un- 
able to  take  the  drastic  measures  that  the  situation 
demands.  The  government  would  fall  if  any  sweep- 
ing reduction  were  made. 

The  proportionate  advance  of  railway  passenger 
and  freight  rates  has  not  kept  pace  with  the  advance 
in  expenses.  Owing  to  that  fact  and  to  the  lack  of 
business  the  deficit  from  railway  operations  in  the  case 
of  practically  all  European  nations  has  added  an  enor- 


38  WHAT  NEXT  IN  EUROPE? 

mous  sum  to  the  debit  side  of  their  budgets.  In  time 
it  will  be  possible  of  course  to  meet  this,  but  at  pres- 
ent there  are  serious  political  difficulties  in  the  way. 
It  raises  a  storm  of  public  indignation  if  the  govern- 
ment advances  freight  rates,  just  as  with  us  an  advance 
by  our  railroad  corporations  is  bitterly  opposed. 

Another  new  item  on  the  debit  side  of  many  national 
budgets  has  been  the  cost  of  the  food  subsidy.  Grain 
and  other  food  supplies  were  bought  at  gold  prices 
in  the  world  markets.  They  were  sold  for  paper  cur- 
rency at  a  fraction  of  the  cost  to  the  government. 
The  result  was  undoubtedly  favorable  toward  imme- 
diately quieting  social  unrest,  but  it  was  disastrous 
to  the  budget.  In  most  of  the  countries  this  drain  on 
the  budget  has  been  stopped,  but  the  important  con- 
tribution that  subsidized  food  supplies  have  made  to 
budget  deficits  must  be  intelligently  analyzed. 

Another  important  and  novel  cause  for  these  defi- 
cits is  the  enormous  sums  paid  to  the  unemployed. 
Perhaps  no  other  way  was  possible.  The  transition 
from  the  activities  of  a  war  which  became  in  reality 
an  industrial  struggle  has  resulted  in  every  country 
in  enormous  unemployment. 

Men  could  not  be  left  to  starve,  and  nearly  every 
nation  has  taken  on  its  shoulders  the  task  of  sup- 
porting idle  workmen.  This  has  had  an  evil  effect. 
The  decay  of  moral  fiber  which  has  resulted  and  the 
obstacles  which  it  has  interposed  in  the  way  of  bring- 


BALANCES  AND  BUDGETS  39 

ing  about  any  proper  readjustment  of  wages  has  in 
many  nations  amounted  to  a  social  catastrophe. 

At  the  same  time  the  demands  upon  the  Treasury 
to  meet  these  unemployment  doles  have  wrecked  the 
hopes  of  many  a  finance  minister.  Presumably  this 
item  in  the  budget  will  sooner  or  later  disappear.  A 
large  section  of  the  population  of  a  country  cannot 
go  on  living  permanently  on  public  contributions.  For 
the  time  being,  however,  this  item  has  been  one  of 
the  most  difficult  with  which  European  treasuries  have 
had  to  deal. 

There  are  other  unusual  items  in  the  present  finan- 
cial systems  of  Europe.  In  France,  the  expenditures 
for  reconstruction  are  enormous.  They  have  been 
made  with  the  hope  of  their  repayment  from  German 
indemnities.  The  budget  is  divided  into  ordinary  and 
extraordinary  expenditures  with  those  for  reconstruc- 
tion in  the  latter  division.  Some  nations  have  made 
heavy  loans  to  tide  over  business  enterprises  and  every 
belligerent  country  has  heavy  interest  charges  to  meet 
and  an  inflated  pension  roll. 

It  will  be  seen  that  the  expenses  of  most  Euro- 
pean nations  at  present  cannot  be  taken  as  a  measure 
of  the  fixed  revenue  which  the  nation  must  raise.  The 
debit  side  of  these  budgets  is  capable  of  much  read- 
justment and  amendment.  Future  finance  ministers 
will  have  need  of  great  political  courage.  But  unques- 
tionably they  can  work  far-reaching  reforms  and 


40  WHAT  NEXT  IN  EUROPE? 

eventually  present  far  more  favorable  budgets  than 
those  of  the  current  year. 

On  the  other  side  of  the  problem  presented  by  na- 
tional finances  we  must  examine  current  income.  In 
nearly  every  country  we  will  find  that  taxes  have  been 
laid  with  a  heavy  hand.  In  Germany,  Czecho-Slovakia, 
Austria  and  elsewhere  capital  taxes  reaching  as  high 
as  fifty  percent  have  been  imposed.  In  many  coun- 
tries the  income-tax  takes  from  the  large  owner  of 
capital  the  greater  part  of  his  income.  Inheritances 
are  divided  between  the  government  and  the  legatees. 
Luxury  taxes  are  heavy.  Import  duties  have  advanced 
everywhere  on  the  theory  that  as  much  revenue  as  pos- 
sible should  be  raised  by  this  means.  But  primarily 
it  is  desired  to  make  the  customs  duty  so  high  that 
practically  it  will  prohibit  certain  luxury  imports, 

The  effect  of  heavy  taxation  is  to  limit  seriously 
the  provision  of  fresh  capital  for  industrial  and  com- 
mercial enterprises.  If  the  savings  of  the  people  are 
taken  by  the  government  they  cannot  be  devoted  to 
fresh  undertakings.  Consequently  business  enterprise 
is  checked  or  prevented  everywhere. 

While  most  nations  have  formulated  tax  measures 
which  have  appeared  to  be  extremely  severe,  they  have 
not  been  equally  rigid  in  enforcing  the  duties  of  the 
tax  collector.  My  observation  was  that  Italy  was  col- 
lecting taxes  with  a  firm  hand.  Her  income  each  month 


BALANCES  AND  BUDGETS  41 

runs  ahead  of  the  anticipated  receipts  and  no  one 
seems  to  escape  easily  from  the  collector. 

In  Germany,  on  the  other  hand,  while  the  tax  pro- 
gram is  excessively  severe,  I  doubt  if  it  is  collected 
with  anything  like  the  rigor  that  is  shown  in  Italy. 
The  corruption  on  the  part  of  tax  collectors  is  notori- 
ous in  some  countries — in  Poland  and  Roumania, 
for  example.  The  result  is  that  the  taxpayer  evades 
his  obligation  and  the  Treasury  suffers. 

Italy  offers  an  example  of  wisely  laid  taxes.  Her 
luxury  tax  is  heavy  and  is  rigorously  enforced,  and 
her  customs  duties  are  designed  to  prevent  her  peo- 
ple from  adding  to  her  adverse  trade  balance  with  un- 
necessary purchases. 

It  will  be  seen  from  the  foregoing  that  present 
budgets  are  capable  of  material  reform  on  the  debit 
side.  Some  of  them  might  show  great  increases  on 
the  credit  side  if  more  severe  tax  legislation  is  enacted 
and  if  collections  are  strictly  enforced.  But  until 
these  reforms  are  effected,  most  European  budgets 
will  fail  to  balance  and  every  finance  minister  will 
be  faced  with  a  serious  deficit.  In  many  countries  it 
will  be  with  a  deficit  of  appalling  size. 

Let  us  now  examine  what  occurs  when  a  nation's 
expenditures  exceed  its  income  from  taxation  and,  be- 
ing without  the  political  courage  or  perhaps  lacking 
jthe  credit  to  make  up  the  deficit  by  borrowing,  the 


42  WHAT  NEXT  IN  EUROPE? 

Treasury  begins  to  print  currency  to  fill  the  gap  in 
the  budget. 

If  I  were  an  incarnate  devil  whose  sole  objective  was 
to  bring  upon  human  beings  a  reign  of  injustice  and 
misery,  and  could  use  only  one  instrument  for  that 
purpose,  I  should  choose  a  government  printing  press. 
With  it  I  could  bring  about  a  chain  of  evil  events 
which  would  paralyze  industry,  make  a  mockery  o£ 
thrift  and  effectively  undermine  morality.  It  is  diffi- 
cult for  any  one  who  has  not  experienced  the  evil 
results  that  inevitably  follow  prolonged  inflation  to 
comprehend  what  a  diabolical  instrument  is  the  cur- 
rency printing  press. 

In  America,  we  have  seen  a  little  of  the  evil  of  in- 
flation, although  we  have  remained  squarely  upon  the 
gold  standard. 

The  great  influx  of  gold  which  poured  into  this 
country  was  in  itself  an  inflationary  development.  In- 
directly it  did  more  than  inflate  our  standard  of  cur- 
rency. It  gave  bankers  a  reserve  upon  which  they 
could  expand  credit  and  thus  put  into  the  hands  of 
people  a  purchasing  power  that  had  grown  much  more 
rapidly  than  the  amount  of  goods  to  be  purchased. 

The  result  with  us  was  a  period  of  rising  prices  and 
an  accompanying  advance  in  wages.  It  was  calcu- 
lated that  the  dollar  of  1918  would  purchase  only  as 
much  as  could  be  bought  with  forty-six  cents  in  1914. 


BALANCES  AND  BUDGETS  43 

The  prudent  man  who  had  put  money  in  the  savings 
bank,  the  head  of  the  family  who  had  made  a  sacri- 
fice to  keep  his  insurance  policy  in  full  force,  the  in- 
vestor who  had  sacrificed  present  opportunity  for 
expenditure  and  had  saved  capital  to  loan  to  industry 
or  commerce  suffered  great  injustice.  People  living 
on  fixed  incomes,  such  as  school  teachers,  civil  serv- 
ants and,  for  a  time,  the  clerk  class,  whose  incomes 
were  not  speedily  adjusted  to  meet  the  new  value  of 
our  standard,  found  themselves  laboring  under  extreme 
economic  disadvantage. 

On  the  other  hand,  men  and  corporations  who  had 
contracted  debts,  found  themselves  able  to  discharge 
those  obligations  with  dollars  that  would  purchase  less 
than  half  the  amount  of  goods  which  could  have 
been  purchased  with  the  dollars  when  they  were 
borrowed.  The  market  value  of  fixed  forms  of 
investment  tended  to  rise  in  proportion  to  the  de- 
cline in  the  purchasing  price  of  the  dollar.  Hold- 
ers of  stocks  in  corporations  found  themselves  con- 
stantly growing  rich.  Manufacturers  who  bought  raw 
materials  that  took  considerable  time  to  pass  through 
the  industrial  process  that  turned  them  into  manufac- 
tured goods,  found  that  the  rise  in  price  of  the  raw 
material  was  so  rapid  that  they  could  sell  their  goods 
for  perhaps  twice  what  they  had  anticipated  would  be 
their  market  value.  When  our  inflation  ceased  and 


44  WHAT  NEXT  IN  EUROPE? 

prices  began  to  drop — in  other  words,  when  the  value 
of  the  dollar  began  to  appreciate — there  fell  upon 
society  even  worse  evils. 

Prices  were  so  high  that  buyers  held  aloof  from  the 
markets  and  commercial  stagnation  resulted.  Wages 
were  high,  but  men  were  without  work.  The  manu- 
facturer who  bought  high-priced  raw  material  found 
that  his  product,  after  a  large  amount  of  capital  and 
labor  had  been  expended  in  producing  it,  was  perhaps 
worth  less  than  he  had  paid  for  the  raw  material. 
Merchants  experienced  unparalleled  declines  in  the 
value  of  their  stocks,  and  many  men,  although  observ- 
ing all  the  ordinary  rules  of  prudence  and  business 
caution,  faced  ruin  as  the  result  of  the  great  receding 
wave  of  prices  which  deflation  was  causing.  We  have 
seen  all  this  happen  in  our  own  country,  yet  we  find 
it  difficult  to  understand  the  stupendous  inflation  in 
Europe. 

Our  experience  in  America  has  been  a  tame  affair 
compared  to  what  many  European  peoples  have  en- 
countered. At  the  extreme  points  we  depreciated  the 
dollar  between  the  beginning  of  1914  and  the  end  of 
1919  to  forty-six  percent  of  its  first  value.  The  pur- 
chasing power  of  krones,  marks,  leva  and  lire  de- 
clined in  headlong  fashion.  Some  currencies  declined 
to  one  percent  of  their  former  purchasing  value.  All 
the  central  European  currencies  fluctuated  in  their 
purchasing  power  so  wildly  that  adequate  price  re- 


BALANCES  AND  BUDGETS  45 

adjustments  could  not  possibly  keep  pace.     Markets 
became  economic  absurdities. 

These  fluctuations  mark  a  chapter  of  financial  hor- 
rors which  is  without  parallel  in  the  history  of  hu- 
man society.  They  have  introduced  a  period  of  social 
injustice,  a  time  of  industrial  disarrangements,  and  an 
epoch  in  which  moral  character  and  the  sound  virtues 
of  honesty,  industry,  thrift  and  provision  for  the  mor- 
row have  been  rendered  valueless.  Worse  than  that, 
all  that  has  happened  is  only  half  the  measure  of  the 
evils  that  have  flowed  from  the  printing  press  with 
the  endless  stream  of  paper  money.  For  the  time  must 
come  when  deterioration  of  the  money  standard  can 
go  no  further,  when  some  readjustment  toward  firm 
values  will  be  made.  Then  there  will  be  reenacted  an- 
other series  of  injustices,  another  period  of  painful 
readjustments  that  will  be  discouraging  to  enterprise. 
Because  of  the  blind  misunderstanding  of  the  causes 
there  will  probably  be  futile  political  action  by  which 
unscientific  means  will  be  sought  to  remedy  evils,  the 
origin  of  which  is  obscure  to  the  ordinary  mind. 

If  one  were  to  attempt  to  make  a  catalogue  of  the 
results  of  the  great  war,  I  believe  that  on  the  credit 
side  so  few  items  might  be  entered  that  the  page  would 
be  almost  blank.  But  there  is  one  result  that  should 
be  of  untold  value  to  the  future  of  America.  The 
awakening  of  all  men's  minds  to  the  worth  of  a  stable 
standard  of  value  and  an  apprehension  of  the  untold 


46  WHAT  NEXT  IN  EUROPE? 

evils  that  any  people  must  encounter  who  try  to  take 
the  apparently  simple  course  of  filling  the  gap  in  the 
national  budget  by  the  printing  of  paper  money  will 
be  a  great  gain  if  we  have  learned  the  lesson. 

I  remember  in  the  early  days  after  America  had 
entered  the  war  and  when  we  first  came  to  realize  a 
little  of  the  huge  expenditure  that  was  to  be  involved 
in  our  war  effort,  men  holding  high  positions  were  dis- 
posed to  recommend  that  we  should  adopt  the  means 
of  the  printing  press.  I  recall  a  conversation  with  a 
member  of  the  cabinet  in  the  fall  of  1918,  in  which 
he  strongly  urged  that  we  should  meet  the  government 
need  for  funds  not  by  the  persistent  struggle  to  sell 
bonds,  which  we  were  then  beginning,  but  by  the  simple 
and  easy  means  of  printing  money. 

Another  official,  one  of  the  highest  in  the  Treasury 
Department,  advocated  the  same  course.  Had  it  been 
followed  the  evils  that  would  have  come  upon  us  would 
have  multiplied  many  times  those  that  we  have  experi- 
enced. Such  recommendations  were  made  only  through 
economic  ignorance.  America  s'hould  study  what  in- 
flation has  meant  to  Europe  and  should  so  fix  in  its 
mind  the  diabolical  results  of  the  free  printing  of 
paper  money  that,  under  no  financial  stress  the  Treas- 
ury may  ever  face,  will  our  nation  be  led  into  the 
quagmire  of  unlimited  paper  money. 

It  is  evident  that  even  with  the  rule  of  three  to  fol- 
low in  judging  the  economic  future  of  European  coun- 


BALANCES  AND  BUDGETS 


47 


tries — food  supply,  foreign  trade  balances  and  budgets 
— it  is  not  an  easy  thing  to  arrive  at  a  true  picture  of 
conditions.  No  matter  how  wise  the  Treaty-makers 
might  have  been,  even  they  could  not  have  foreseen  all 
of  the  results  that  have  followed  the  Peace. 


CHAPTER  IV 
INFLATION 

AN  old  woman  was  sitting  on  the  stone  sidewalk  of 
a  crowded  street  in  Warsaw.  She  was  a  haggard  old 
woman,  so  poorly  dressed  that  she  was  the  personifica- 
tion of  Poverty.  She  was  making  her  living  selling 
newspapers  and  as  I  saw  her  in  the  dusk  of  early  eve- 
ning her  stock  had  been  pretty  well  sold  out.  The 
unsold  papers  were  lying  on  the  pavement  beside  her, 
and  would  take  her  some  time  to  dispose  of.  On 
the  other  side  was  another  paper  pile  quite  as  high 
as  the  remaining  newspapers,  held  down  by  a  stone  to 
prevent  its  blowing  away.  The  second  pile  was  also 
fresh  from  the  printing  press,  but  it  consisted  not  of 
newspapers  but  of  money.  The  picture  of  this  old 
woman,  with  her  stack  of  money,  is  a  poignant  memory 
to  me,  a  bitter  illustration  of  inflation. 

There  are  several  countries  in  Central  Europe  which 
might  well  be  called  the  Lands  of  Millionaires.  It 
is  comparatively  easy  to  be  a  millionaire,  if  the  units 
which  make  up  the  million  become  infinitesimally  small. 
That  is  what  has  happened,  or  is  happening,  in  almost 
the  entire  group  of  Central  European  states. 

48 


INFLATION  49 

I  doubt  if  any  one  has  a  keen  enough  imagination 
to  picture  fully  what  inflation  really  means  when  it 
is  carried  to  a  point  where  the  unit  of  value  becomes 
almost  valueless.  I  had  supposed  that  I  had  a  rather 
lively  appreciation  of  the  horrible  social  injustices, 
of  the  topsy-turvydom  of  life  in  a  community  where 
the  printing  of  money  had  been  practically  unlimited. 
I  thought  that  I  knew  something  of  the  way  in  which 
a  wildly  fluctuating  currency  undermines  the  morals 
of  people,  makes  a  jest  of  thrift  and  industry,  robs 
the  worker  and  rewards  the  speculator.  I  found,  how- 
ever, that  my  imagination  had  fallen  far  short  of  the 
reality,  and  I  have  come  to  believe  that  no  one  who 
has  not  personally  investigated  its  results  can  under- 
stand in  all  its  ramifications  the  true  meaning  of  an 
almost  completely  debased  standard  of  value. 

At  its  best,  in  a  well-ordered  and  stable  world,  our 
measurements  of  value  have  never  been  scientifically 
accurate,  or  even  tolerably  stable.  Society  has  always 
been  encountering  price  movements  resulting  from  the 
shortening  or  lengthening  of  our  measure  of  value. 
The  yard  of  lineal  measure  was  originally  the  girth 
of  a  king,  and  as  kings  came  and  passed  with  vary- 
ing girth  it  was  found  that  some  standard  of  measure 
less  influenced  by  royal  dinners  or  royal  asceticism 
had  to  be  evolved. 

A  stable  measure  of  money,  however,  has  always 
been  more  difficult,  because  the  fundamental  base  of 


50  WHAT  NEXT  IN  EUROPE? 

that  standard,  gold,  was  subject  to  fluctuations  of  the 
same  character,  though  less  in  degree  than  with  other 
commodities.  When  commercial  life  grew  more  com- 
plicated there  came  new  elements  of  instability  in  our 
measures  of  value.  We  organized  banks,  and  created 
new  means  of  payment  by  making  loans  that  turned 
into  bank  deposits;  we  printed  bank-notes  and  issued 
the  printed  fiats  of  governments,  calling  them  legal 
tender.  And  so,  at  best,  men's  calculations  as  to  the 
future  course  of  prices  were  always  being  upset  by  the 
contraction  or  expansion  of  our  standard  of  meas- 
ure. 

Any  experiences  the  world  has  had  heretofore  in 
the  way  of  a  fluctuating  standard  of  value,  however, 
have  been  solidity  itself  in  comparison  with  the  result 
of  the  activities  of  treasury  printing  presses  during 
the  war,  and  particularly  since  the  armistice.  At  the 
outbreak  of  the  war  England  had,  in  addition  to  her 
stock  of  metallic  gold,  an  issue  of  28,933,380  pounds 
in  notes  of  the  Bank  of  England,  and  total  deposits  in 
the  Bank  of  England  of  60,263,733  pounds.  On  No- 
vember 30,  1920,  there  were  125,112,960  pounds  in 
currency  notes  issued  by  the  government,  and  144,- 
160,000  pounds  on  deposit  in  the  bank. 

The  currency  of  France  at  the  outbreak  of  the  war 
consisted  of  a  little  less  than  six  billion  francs  of  the 
notes  of  the  Bank  of  France ;  to-day  the  total  is  almost 
thirty-seven  billion  francs. 


INFLATION  51 

Germany  entered  the  war  with  two  billion  marks  in 
notes  of  the  Reichsbank.  A  new  total  would  now  have 
to  be  made  each  week,  for  the  German  printing  press 
is  turning  out  notes  at  a  rate  as  high  as  four  and 
a  half  billion  per  week,  and  the  total  in  the  last  month 
of  1921  reached  a  hundred  billion. 

In  pre-war  days,  Poland  as  it  is  at  present  consti- 
tuted had  a  circulation  of  German  marks,  of  Austrian 
crowns,  and  of  Russian  roubles.  When  the  new  gov- 
ernment was  formed,  the  one  piece  of  machinery  in  its 
possession  which  worked  with  perfect  efficiency  was 
the  printing  press.  It  had  turned  out  up  to  the  end 
of  1921  about  one  hundred  and  seventy  billion  of  new 
Polish  marks. 

The  six  and  a  half  million  population  composing 
the  new  Austria  now  has  over  one  hundred  and  three 
billion  crowns  of  paper  money. 

Italy's  pre-war  currency  of  the  Bank  of  Italy  to- 
taled 1,556,925,000  lire  at  the  outbreak  of  the  war, 
and  is  now  14,326,059,000  lire,  although  Italy  pre- 
sents the  one  case  in  Europe  where  there  has  been 
a  marked  decrease  from  the  high  point  of  circulation, 
and  her  present  stock  of  paper  money  of  the  Bank 
of  Italy  is  952,906,000  lire  below  where  it  stood  at 
the  beginning  of  1920. 

So  one  might  continue  the  catalog,  and  include  in 
it  almost  every  nation  of  the  continent  of  Europe. 

I  have  not  mentioned  Russia.    The  currency  situa- 


52  WHAT  NEXT  IN  EUROPE? 

tion  there  would  have  made  Alice  in  Wonderland  gasp. 
Two  Russian  roubles  used  to  equal  one  dollar,  or  a 
slight  fraction  less;  to-day  a  dollar  will  buy  two  hun- 
dred thousand  of  the  current  roubles  issued  by  the 
Soviet  government.  I  was  offered  a  million  Wrangel 
roubles,  while  in  Constantinople,  for  one  American 
dollar  bill. 

There  are  many  aspects  from  which  to  view  this 
monstrous  creation  of  paper  money.  There  is  an  end- 
less chain  of  social  injustices  resulting  from  it.  There 
follows  such  a  breakdown  of  the  virtues  of  industry, 
thrift,  and  forethought  for  the  future,  that  the  result 
in  the  way  of  a  deterioration  of  moral  fiber  may 
well  class  inflation  as  one  of  the  greatest  curses  that 
has  ever  fallen  on  mankind. 

It  has  been  discovered  that  the  very  foundation 
of  the  capitalistic  order  can  be  attacked  by  this  in- 
sidious means  of  confiscatory  taxation,  for  that  is  one 
of  the  effects  of  inflation.  But  more  important  per- 
haps than  the  cruel  injustice  of  property  readjustment 
which  inflation  necessitates,  more  important  than  the 
dangerous  political  discovery  that  the  currency  print- 
ing press  is  an  instrument  of  taxation  which  can  rob 
those  who  have  possessed  of  all  their  possessions,  is 
the  barrier  which  inflation  erects  in  the  way  of  com- 
mercial and  industrial  relationships.  Europe's  present 
plight  is  not  in  the  main  the  result  of  the  losses  en- 
tailed by  the  war;  it  is  rather  the  result  of  the  disor- 


INFLATION  53 

ganization  of  the  machinery  of  our  modern  world  for 
the  exchange  of  goods. 

How  does  it  happen  that  the  whole  Continent  could 
have  been  possessed  of  the  madness  of  printing  almost 
unlimited  amounts  of  paper  money?  Have  finance 
ministers  been  blind  fools?  Have  they  wholly  lost 
sight  of  the  simplest  principles  of  economics?  Has 
some  malign  power  so  distorted  and  upset  the  reason- 
ing of  governments  that  they  cannot  see  where  the 
road  leads  that  is  paved  with  paper  money?  Would 
not  sane  and  clear-minded  men  have  avoided  this  evil 
of  evils,  into  which  half  the  governments  of  Europe 
have  fallen?  Those  are  questions  which  naturally 
arise  when  one  views  the  economic  plight  of  many 
European  countries. 

I  have  conferred  with  practically  every  finance  min- 
ister in  Europe.  They  are  not  fools;  they  are  in  the 
main  able,  clear-sighted,  intelligent  men.  They  know 
to-day,  if  they  did  not  know  two  or  three  years  ago, 
the  true  nature  and  extent  of  the  evils  that  lie  in  ink 
and  paper,  when  combined  into  circulating  notes  of 
uncontrolled  volume.  Then  why  have  they  not 
stopped?  Why  do  they  not  halt  the  activities  of  their 
presses,  reduce  expenditure,  increase  taxation,  and 
balance  their  budgets?  That  is  the  classical  advice  we 
have  all  been  giving  to  these  distraught  European 
nations.  I  have  come  to  see  that  it  is  just  about  as 
practical  as  it  would  be  to  advise  a  man  afflicted  with 


54  WHAT  NEXT  IN  EUROPE? 

insomnia,  who  had  been  sleepless  for  a  week,  that  if 
he  went  to  bed  earlier  and  slept  soundly  he  would  wake 
up  in  the  morning  feeling  better. 

The  finance  ministers  who  have  been  responsible  for 
the  disastrous  inflation  of  currency  have  had  no  other 
course  open  to  them.  I  am  convinced  that  the  same 
thing  would  have  happened  in  any  community  faced 
with  the  same  circumstances.  They  could  not  raise 
enough  money  from  taxation  or  from  loans  to  balance 
their  budgets.  Their  income  from  all  possible  sources 
was  less  than  their  necessary  expenses.  The  govern- 
ment must  pay  its  debts  to  keep  from  going  under, 
and  governments  could  frequently  only  pay  debts  by 
printing  money  and  issuing  it  as  legal  tender. 

This  is  the  position  in  which  the  Central  European 
governments  found  themselves  after  the  war.  It  may 
be  worth  while  to  examine  in  some  detail  the  financial 
problem  which  some  of  these  governments  faced.  Let 
us  take  the  situation  of  Poland. 

I  have  heard  Poland  described  as  the  comedian 
in  European  government  finance.  Here  was  a  nation 
of  thirty  million  people,  located  in  a  vast  territory  of 
great  agricultural  and  natural  wealth.  It  started  its 
existence  without  debt,  and  free  from  any  weight  of 
indemnity,  or  immediate  pressure  for  its  portion  of 
the  pre-war  indebtedness  of  the  old  nations  from  which 
it  was  formed.  In  two  years  it  was  utterly  bankrupt. 
To-day  it  is  without  credit.  It  has  printed  one  hun- 


INFLATION  55 

dred  and  seventy  billions  of  Polish  marks,  and  has  in 
hand  plans  for  adding  seventy  billions  to  that  total. 
Its  currency  is  beginning  to  be  refused  in  its  own  shops 
for  articles  of  international  value.  Its  own  people  so 
discredit  the  currency  that  real-estate  operations  are 
now  officially  conducted  in  dollars. 

On  its  face  all  this  looks  like  mad  finance,  a  situa- 
tion in  which  the  Polish  artistic  temperament  had  run 
a  government  with  complete  absence  of  financial  com- 
mon sense. 

After  studying  on  the  ground  the  brief  history  of 
the  new  state,  I  would  not  harshly  condemn  the  Poles. 
It  is  true  they  were  without  experience,  and  that  they 
were  an  improvised  nation,  racially  united  but  politi- 
cally separated  for  one  hundred  and  fifty  years,  un- 
der the  domination  of  Russia,  Austria,  and  Prussia. 
They  had  been  refused  practically  all  right  to  partici- 
pate in  their  government  through  all  these  years. 
Without  training  or  tradition  for  administration  they 
faced  problems  that  would  have  appalled  Alexander 
Hamilton. 

This  improvised  government,  created  suddenly  with- 
out any  of  the  machinery  of  administration,  officered 
by  absolute  inexperience,  their  inexperience  further 
hampered  by  temperament,  had  to  rule  a  territory 
parts  of  which  had  been  ravaged  again  and  again  by 
war.  Vast  districts  had  been  swept  clean  of  houses, 
tools,  farm  animals  and  even  of  population. 


56  WHAT  NEXT  IN  EUROPE? 

A  huge  agglomeration  of  various  issues  of  Russian 
roubles,  rapidly  declining  Austrian  crowns,  German 
marks,  and  other  marks  issued  during  the  German 
occupation  formed  the  currency  of  the  country.  There 
was  an  outstanding  issue  of  notes  of  the  Polish 
Loan  Bank  of  eight  hundred  and  eighty  million 
marks. 

Never  did  a  government  face  a  greater  confusion 
of  currencies.  Although  all  parts  of  the  new  country 
were  inflamed  with  the  spirit  of  Polish  nationalism, 
there  were  jealousies  and  misunderstandings  which 
made  the  task  of  government  doubly  difficult. 

The  Poland  that  was  constituted  by  the  Peace  Treaty 
was  a  country  of  nebulous  borders.  On  no  border  was 
there  peace.  On  the  east  border  there  was  a  threat 
of  destruction;  Bolshevist  Russia  with  the  fist  of  the 
Red  Army  was  knocking  at  the  very  gate  of  War- 
saw. It  came  to  within  eleven  miles  of  the  capital, 
and  there  was  the  gravest  danger  that  Bolshevism 
would  extend  its  domain  to  the  border  of  Prussia. 

Poland  had  to  have  funds  for  her  army,  or  perish. 
The  Allies  urged  her  to  fulfill  her  destiny  as  a  buffer 
state  to  keep  back  the  wave  of  Bolshevism,  but  gave 
her  little  material  help.  There  seemed  nothing  to  do 
in  the  extreme  urgency  of  the  moment  but  brutally  to 
run  the  printing  press,  to  sell  these  demand  obligations 
of  paper  currency  for  whatever  they  would  bring  any- 
where munitions  could  be  purchased. 


INFLATION  57 

Fortunately  the  Red  Army  was  forced  to  retire, 
but  victory  in  the  field  had  meant  defeat  in  the  treas- 
ury, and  Poland  was  already  bankrupt.     Is  it  to  be 
wondered  that  after  escaping  from  such  a  situation, 
feeling  the  need  of  an  army  on  every  border,  hungry, 
and  needing  to  import  food  that  had  to  be  purchased 
with  the  equivalent  of  gold,  she  continued  to  travel 
the  road  of  inflation?    The  tax-collecting  machine  was 
wholly  untrained  in  its  duties,  the  population  was  un- 
used to  heavy  taxes,  and  starving  government  officers 
plunged  into  an  inevitable  riot  of  bribery  because  they 
had  to  accept  bribes  if  they  were  to  live.     A  nation 
beset  by  all  these  difficulties  was  helpless  to  take  any 
other  course.    No  one  could  have  stopped  it. 

I  went  to  Poland  with  the  feeling  that  her  financial 
history  was  an  appropriate  theme  for  comic  opera; 
I  left  with  feelings  of  profound  commiseration  for  a 
people  who,  as  it  seemed  to  me,  had  been  inevitably 
driven  down  the  road  of  almost  lawless  currency  in- 
flation to  national  bankruptcy. 

Aside  from  Russia,  Poland  is  the  most  flagrant 
offender  against  the  hard  maxims  of  political  econ- 
omy. But  in  a  sympathetic  examination  of  the  situa- 
tion in  every  one  of  these  Central  European  powers 
one  finds  that  there  was  an  element  of  the  inevitable 
in  these  tragedies  of  treasuries.  They  have  not  been 
fools;  they  have  been  victims.  They  are  not  blind; 
they  are  helpless,  and  one  after  another  they  are  be- 


58  WHAT  NEXT  IN  EUROPE? 

ing  drawn  into  a  vortex,  from  which  they  have  no 
means  of  escape  in  their  own  power. 

If  they  are  rescued  now  from  complete  demoraliza- 
tion of  the  whole  monetary  system  of  exchanges  of 
goods,  they  will  have  to  have  outside  help.  They  will 
have  to  create  a  currency  divorced  from  the  govern- 
ment printing  press. 

It  is  easier  to  see  how  this  general  process  of  in- 
flation occurred  than  it  is  to  understand  what  it  means 
to  human  society  founded  on  the  capitalistic  order 
when  the  measure  of  value  almost  disappears.  There 
can  be  no  readjustment  of  the  inequalities  and  injus- 
tices that  flow  from  such  a  crumbling  of  financial 
foundations.  The  suffering  is  as  real  and  as  irrepa- 
rable as  the  casualties  of  war.  No  one  is  safe  from 
it,  except  those  who  already  have  nothing.  The  fruit 
of  industry,  prudence,  and  thrift  goes  down  in  a  wind- 
fall of  rottenness. 

Consider  in  detail  some  of  the  deplorable  effects  that 
follow  inflation  when  the  value  of  a  country's  unit 
of  currency  has  been  reduced  to  a  tenth  or  a  hun- 
dredth of  its  former  purchasing  power.  Obviously, 
all  people  who  live  on  fixed  incomes,  who  had  fortunes 
invested  in  the  soundest  securities,  have  become  impov- 
erished. Families  that  enjoyed  large  incomes  derived 
from  interest  paid  on  corporate  or  government  debts 
find  that  the  income  which  once  kept  them  in  luxury 
will  no  longer  buy  the  simplest  necessities.  This  situ- 


INFLATION  59 

ation  does  not  affect  the  rich  man  alone.  The  person 
of  moderate  means  finds  the  savings  of  a  lifetime  no 
longer  yield  an  income  of  any  appreciable  value.  Per- 
sons who  have  lived  economical  lives,  and  who  have 
accumulated  by  constant  sacrifice  provision  for  their 
old  age,  find  that  provision  no  longer  sufficient  to  sup- 
ply the  simplest  of  human  needs.  Self-respecting,  well- 
to-do  people  who  have  reached  an  age  where  their 
earning  capacity  has  practically  ceased,  suddenly  dis- 
cover that  they  are  paupers,  and  that  they  have  to 
stand  in  line  at  public  soup  kitchens  to  get  the  dole 
of  food  Which  will  keep  them  alive. 

The  entire  class  of  people  who  have  drawn  their  live- 
lihood from  endowed  institutions,  such  as  college  pro- 
fessors, librarians,  curators  and  so  forth,  discover  that 
their  income  cannot  be  increased  because  it  is  derived 
from  fixed  investments,  and  that  its  purchasing  power 
may  have  been  divided  by  ten,  or  by  a  hundred.  The 
suffering  among  this  class  has  been  most  acute.  Their 
ability  to  render  service  has  disappeared.  Whole  pro- 
fessions have  been  automatically  wiped  out. 

The  evil  does  not  stop  there.  Not  only  are  all  past 
savings  made  valueless,  and  old  financial  foundations 
unstable,  but  there  is  no  secure  ground  upon  which 
to  start  rehabilitation.  Future  contracts  cannot  be 
made  with  safety.  Mills  stand  idle  because  it  takes 
time  to  turn  raw  products  into  manufactured  goods, 
and  although  unemployed  workmen  may  crowd  at  one 


60  WHAT  NEXT  IN  EUROPE? 

gate  with  hands  outstretched  for  doles  to  keep  them 
alive,  and  customers  clamor  at  another  for  the  goods 
they  wish  to  purchase,  the  manufacturer  banks  the 
fires,  and  turns  the  key  in  the  door.  From  experience 
he  knows  too  well  the  utter  insecurity  of  selling  goods 
for  future  delivery  at  a  price  which,  when  paid,  be- 
comes a  mockery  to  his  industry. 

If  a  man  holds  a  mortgage  on  real  estate,  his  prin- 
cipal may  be  paid  off,  but  the  purchasing  value  of  the 
total  will  be  less  than  what  a  year's  interest  used  to 
buy.  The  thrifty  person  of  moderate  means  who  has 
accumulated  savings  discovers  that  his  lifetime  savings 
have  deteriorated  in  value  to  almost  nothing.  Annui- 
ties and  life-insurance  policies  become  "scraps  of  pa- 
per." American  life-insurance  companies  have  paid 
the  principal  of  policies  in  Austria,  for  example,  with 
a  five-dollar  bill,  that  would  have  cost  them  the  gold 
equivalent  of  a  thousand  dollars  in  pre-war  days.  This 
does  not  necessarily  mean  that  the  insurance  company 
has  swindled  policy  holders.  If  the  insurance  company 
has  been  forced  to  invest  foreign  premiums  in  foreign 
securities,  as  was  frequently  the  case,  the  securities 
owned  depreciated  as  rapidly  as  did  the  gold  value  of 
the  policies  written.  The  insurance  company  gains 
nothing,  even  though  it  pays  almost  nothing  in  liquida- 
tion of  its  obligations. 

A  deteriorating  currency  is  the  most  fruitful  cause 
of  industrial  unrest.  Wages  can  be  adjusted  to  the 


INFLATION  6 1 

decreased  value  of  the  money  in  which  they  are  paid, 
but  they  are  never  adjusted  with  the  speed  and  to  the 
extent  that  the  currency  has  declined.  The  constant 
effort  on  the  part  of  labor  to  bring  its  wages  up  to  a 
point  that  will  permit  a  continuance  of  the  old  standard 
of  living  furnishes  the  richest  ground  for  industrial 
disputes. 

All  business  operations  become  speculations  in  ex- 
change. Good  judgment  in  regard  to  business  ques- 
tions ceases  to  be  effective.  Men  find  that  the  return 
they  get  for  finished  manufactured  goods  depreciates 
in  value  so  rapidly  that  it  will  not  pay  for  raw  mate- 
rial from  which  to  make  an  equal  amount  of  goods. 
A  business  enterprise  may  make  what  appears  to  be 
large  earnings,  only  to  discover  in  the  end  that  it  has 
lost  its  capital.  Dividend  returns  that  look  excessive 
when  translated  into  current  buying  power  are  re- 
duced to  almost  nothing. 

In  Vienna  I  paid  a  taxicab  driver  sixty  times  the 
amount  registered  on  the  meter.  When  that  was  trans- 
lated into  gold,  the  real  value  of  the  payment  was  so 
small  that  it  was  better  to  keep  the  cab  all  day  than 
to  take  the  trouble  to  dismiss  it  and  later  pick  up  an- 
other. I  remember  riding  in  cabs  in  Berlin  and  find- 
ing at  the  end  of  a  considerable  journey  that  the  bill 
translated  into  gold  values  was  four  cents,  although 
I  had  paid  ten  times  what  the  taximeter  registered. 

Prices  cannot  be  readjusted  rapidly  enough  even  ap- 


62  WHAT  NEXT  IN  EUROPE? 

proximately  to  keep  pace  with  the  decline  in  the  cur- 
rency. Storekeepers  find  their  stocks  sold  out,  and 
are  unable  to  replace  them  with  the  money  they  have 
received.  Merchants  are  left  hopelessly  bewildered  as 
to  what  course  to  pursue.  When  the  value  of  a  cur- 
rency becomes  depressed  almost  to  the  vanishing  point, 
traders  begin  to  demand  other  forms  of  payment,  and 
decline  to  name  prices  in  local  currency.  It  is  at  that 
point  that  the  real  bankruptcy  of  a  nation  begins. 
When  its  output  of  legal  tender  paper  will  no  longer  be 
received  freely  in  exchange  for  goods,  some  other 
means  of  carrying  on  commerce  must  be  devised. 

No  matter  how  much  a  currency  is  inflated,  no  mat- 
ter how  desperately  low  its  value  measured  in  the 
world's  exchanges  falls,  the  memory  of  its  old-time 
worth  remains  in  the  minds  of  people  who  are  accus- 
tomed to  its  use.  They  ascribe  to  it  a  value  which 
it  no  longer  possesses.  In  consequence,  there  are  in- 
numerable hoards  of  almost  worthless  currency  in 
nearly  every  country  in  Europe.  The  owners  feel  that 
they  have  sold  their  produce  at  high  prices.  They  have 
found  the  currency  efficient  in  paying  off  old  debts. 
They  may  understand  little  about  investments,  and  so 
they  hoard  a  pile  of  paper  notes,  only  to  find  in  the 
end  that  in  spite  of  what  seemed  to  be  a  rapidly  grow- 
ing fortune,  the  value  of  their  hoard  has  steadily 
declined. 

Illustrations  of  this  kind  could  be  multiplied  inter- 


I 

INFLATION  63 

minably.  Of  all  the  visitations  of  evil  upon  human 
society  as  it  is  now  organized,  those  that  follow  in 
the  train  of  unlimited  currency  inflation  have  the  pro- 
foundest  effect.  It  brings  on  the  people  of  a  nation, 
through  .every  level  of  society,  an  endless  chain  of 
misery  and  suffering.  And  one  half  of  Europe  is  in 
the  grip  of  these  evils;  the  other  half  is  trembling 
on  the  verge. 


CHAPTER  V 
THE  POISON  TREATIES  OF  PARIS 

THE  hurt  which  Europe  is  feeling  so  poignantly  is 
not  the  direct  wound  of  the  war.  Certainly  that 
wound  was  horribly  severe,  but  in  a  sense  it  was  a 
comparatively  clean  wound  and  could  have  been 
healed  in  time.  The  distress  that  Europe  is  suffering, 
a  distress  that  is  progressive,  the  outcome  of  which 
no  man  may  predict  with  assurance,  arises  less  from 
the  direct  injury  of  the  war  than  from  the  indirect 
consequences  of  the  Peace.  There  has  been  a  general 
dislocation  in  Europe  of  the  economic  organization 
of  life.  That  is  the  chief  cause  of  Europe's  suffering 
to-day. 

Many  of  the  roots  of  that  suffering  run  directly 
into  the  ground  of  the  various  Treaties  of  Paris  which 
made  peace,  or  attempted  to  make  peace,  with  all 
Central  Europe  from  the  Mediterranean  to  the 
Baltic. 

One  does  not  need  to  be  pro-anything  to  see  that 
these  treaties  were  conceived  in  hatred  and  malice. 
In  the  minds  of  their  makers  they  had  a  background 
of  an  awful  irreparable  injury  they  had  suffered. 
The  enemy,  terribly  powerful  in  his  late  strength, 

64 


THE  POISON  TREATIES  OF  PARIS         65 

barbarous  in  some  of  his  methods  of  warfare,  poten- 
tially capable  of  future  reprisal,  was  for  the  time 
being  under  the  heel  of  the  conquerors.  It  is  perhaps 
not  surprising  that  hatred,  retaliation,  burning  resent- 
ment and  unfairness  were  written  into  them. 

When  treaties  are  so  made,  however,  they  are  not 
healing  documents.  Outside  of  the  provision  for  the 
League  of  Nations,  there  is  nothing  in  the  various 
treaties  of  Paris  that  is  healing.  It  is  not  difficult  to 
see  how  men  were  moved  to  conceive  such  Treaties. 
It  is  very  difficult  to  see,  however,  how  a  Continent 
afflicted  with  them  can  recover  until  they  are  re- 
written; for  that  they  will  be  rewritten  is  inevitable. 
They  have  set  up  political  situations  as  unstable  as 
quicksilver.  They  have  drawn  national  boundary  lines 
that  may  be  erased  like  pencil  marks..  They  have  cre- 
ated economic  situations  which  must  be  altered,  or 
whole  peoples  must  economically  perish. 

It  does  not  seem  likely  that  any  of  these  changes 
will  be  made  by  the  Allies,  Nevertheless,  changes  are 
inevitable. 

There  is  an  amazing  situation  surrounding  those 
Treaties.  I  will  make  the  assertion  that  there  is  not 
a  well-informed  man  in  Europe  who  will  whole- 
heartedly defend  them.  I  mean  this  sweeping  state- 
ment literally.  Nevertheless,  the  Treaties  stand  sac- 
rosanct. They  are  holy  and  cannot  be  altered  in  a 
letter.  Nobody  believes  in  their  wisdom  and  justice; 


66  WHAT  NEXT  IN  EUROPE? 

and  nobody  believes  in  the  political  possibility  of  re- 
vising them  by  agreement. 

France  is  universally  charged  with  being  the 
stumbling  block  in  the  way  of  altering  the  Treaties, 
The  charge  is  in  a  measure  true  but  even  the  most 
responsible  of  French  statesmen  will  privately  admit 
that  unfairness,  unwisdom  and  injustice  are  im- 
bedded in  them. 

France  at  peace  is  a  curious  contrast  to  France  at 
war.  On  the  battlefield  she  presented  a  stubborn  re- 
sistance against  what  seemed  to  be  overwhelming 
forces,  a  gallant  courage  in  the  face  of  any  odds,  that 
won  for  her  the  ringing  applause  of  the  whole  world. 
Contrasted  with  that  indomitable  courage  in  war  is  a 
state  of  chattering  terror  in  peace.  She  seems  so 
beset  with  fear  of  the  future  that  her  mental  proc- 
esses do  not  register  logically. 

Demanding  from  Germany  an  impossible  indemnity 
she  seeks  by  other  means  to  entangle  her  to  such  an 
extent  that  payment  becomes  doubly  impossible.  In- 
stead of  getting  much,  the  Allies  are  likely  to  get 
comparatively  little,  unless  they  alter  the  terms  of  the 
indemnity. 

With  a  magnificent  steadfastness  that  awed  the 
world,  France  held  up  her  hand  at  Verdun  and  in 
the  greatest  height  of  spiritual  dedication,  she  said, 
"They  shall  not  pass."  Now  in  peace,  with  blindness 
that  is  amazing,  France  says  apparently  with  equal 


THE  POISON  TREATIES  OF  PARIS         67 

determination,  "They  shall  pay,"  and  then  takes 
measures  which  make  full  payment  impossible. 

They  ought  to  pay.  They  ought  to  pay  to  the  last 
mark  that  is  possible  in  reparation  of  the  awful  dam- 
age done.  I  went  over  the  whole  battle-front  soon 
after  the  armistice  and  the  blazing  indignation  that 
the  wanton  destruction  aroused  in  my  mind  makes  it 
comparatively  easy  for  me  to  understand  some  of  the 
illogical  reasoning  of  the  French  mind.  No  matter 
how  much  one  may  admire  France,  however — and 
one  of  the  dearest  possessions  I  have  is  the  bit  of 
red  ribbon  of  the  Legion  of  Honor,  which  I  was 
proud  to  have  in  my  buttonhole  during  every  German 
interview — one  cannot  remain  blind  to  the  harm  that 
France  is  doing  herself,  all  Europe,  and  the  world. 

I  know  it  is  quite  possible  to  explain  the  French 
state  of  mind.  They  have  genuine  cause  for  deep 
apprehension  in  regard  to  the  future.  Germany  has 
nearly  double  the  population  of  France.  If  she  were 
permitted  a  rapid  economic  rehabilitation,  supplied  as 
she  is  with  vast  industrial  plants  which  were  improved 
rather  than  injured  by  the  war,  it  is  quite  within  the 
range  of  possibility  that  she  will  some  day  attack 
France,  under  circumstances  where  France  may  have 
to  fight  the  battle  alone.  The  probabilities  of  the  re- 
sult of  such  a  conflict  are  not  reassuring  to  the  French 
people. 

There  is  no  security  to  France  in  the  fact  that  Ger- 


68  WHAT  NEXT  IN  EUROPE? 

many  is  war-sick.  The  German  people  are  the  most 
obedient  and  easily  led  of  all  Europeans.  They  might 
fight  again  if  ordered  to  do  so. 

No  matter  what  the  facts  may  be,  there  is  universal 
belief  in  Germany  that  she  has  been  unjustly  dealt 
with.  The  Germans  believe  that  they  surrendered  on 
the  Fourteen  Points.  The  basis  of  that  belief  is  de- 
batable, although  there  is  much  to  support  the  Ger- 
man contention.  They  hold  the  view  that  they  were 
forced  to  sign  a  peace  which  not  only  did  not  contain 
those  points  but  which  was  in  many  respects  diamet- 
rically opposed  to  their  spirit. 

Since  the  close  of  the  war  there  have  been  many  acts 
by  the  Allies,  and  particularly  by  France,  which  it 
will  be  difficult  for  Germany  to  forget.  Viewed  by 
the  Germans  from  their  own  background,  many  of 
these  acts  may  rightly  appear  unjust,  and  inevitable 
provocatives  of  lasting  ill-will.  But  viewed  by  the 
Allies  against  a  background  of  German  war  guilt, 
there  is  sufficient  warrant  for  them.  Nevertheless, 
the  attitude  of  the  Allies  is  inflaming  rather  than 
healing. 

When  I  speak  of  the  Treaties  of  Paris,  I  do  not 
mean  the  single  Treaty  of  Versailles,  but  rather  the 
whole  group  of  Treaties,  and  their  subsequent  devel- 
opments. Under  them,  the  nation  of  Poland  was 
extemporized,  the  Danzig  corridor  constructed  and 
Upper  Silesia  divided.  The  old  Hapsburg  Empire 


THE  POISON  TREATIES  OF  PARIS         69 

was  partitioned  into  numerous  states  of  unsound  eco- 
nomic structure  and  unstable  political  elements,  quite 
as  dangerous  and  as  unlikely  of  permanence  as  were 
the  arrangements  made  in  Paris  that  concerned  Ron- 
mania,  Bulgaria,  Albania,  Greece  and  Turkey. 

Many  maps  were  drawn  in  Paris  but  they  did  not 
use  indelible  ink.  National  borders  were  formed  that 
cannot  be  regarded  as  permanent  by  the  most  opti- 
mistic. It  may  take  wars  to  erase  them  and  to  draw 
them  anew,  but  as  they  stand  they  are  certainly  un- 
stable. 

Application  of  the  principle  of  self-determination 
as  carried  out  by  these  Treaties  was  a  most  dangerous 
experiment.  Its  result  has  proven  to  be  one  of  the 
greatest  curses  that  has  fallen  upon  Europe.  That 
does  not  mean  that  self-determination  was  wrong. 
But  it  is  now  perfectly  clear  that  it  was  an  error  to 
permit  self-determination  to  create  a  number  of  new 
states,  each  believing  itself  to  be  supremely  sovereign, 
without  at  the  same  time  controlling  the  relations  of 
these  states  to  each  other.  That  was  a  calamity  as 
great  as  war  itself.  It  was  within  the  power  of  the 
Treaty-makers  of  Paris  to  have  so  federated  these 
states  that  the  economic  impossibilities  arising  from 
this  unrestrained  self-determination  would  not  have 
been  so  certain. 

Perhaps  there  was  fear  that  federated  states  would 
become  dangerous  political  units.  The  alternative  of 


70  WHAT  NEXT  IN  EUROPE? 

erecting  states  in  which  national  antagonisms  were 
fanned  to  white  heat  and  leaving  them  wholly  un- 
restrained in  their  relations  to  each  other  is  proving 
still  more  dangerous.  It  is  leading  to  economic  decay 
and  the  breakdown  of  the  machinery  of  interchange 
by  which  the  industrial  populations  are  supported. 

There  were  political  blunders  at  Paris  which  have 
raised  disturbances  that  cannot  be  composed.  Some 
of  these  arose  in  the  jealousies  and  in  the  cynical  lack 
of  trust  between  the  Allies  themselves. 

England,  France  and  Italy,  none  of  them  honestly 
believing  in  the  open  door,  set  about  staking  out 
spheres  of  influence  in  Asia  Minor.  Each  had  the 
same  object,  that  of  securing  special  advantages  and 
closing  territories  to  freedom  of  commercial  inter- 
course. England  and  France  are  constitutionally 
jealous  of  Italy's  obtaining  any  special  advantage, 
however,  and  plans  for  partitioning  Asia  Minor  com- 
mercially were  hardly  drawn  before  Italy's  vigorous 
action  in  that  field  aroused  the  opposition  of  her 
associates. 

So  the  plan  was  devised  of  injecting  Greece  into 
the  situation.  The  theory  was  advanced  that  Turkish 
rule  had  been  so  bad  that  Greece  should  be  installed 
in  Smyrna  and  given  a  free  hand  to  enforce  its  ad- 
ministration. 

Asia  Minor  is  Turkish,  with  a  fringe  of  Greek  popu- 
lation along  the  Mediterranean  water  front.  The 


THE  POISON  TREATIES  OF  PARIS         71 

problem  of  making  the  Turks  and  the  Greeks  live 
peacefully  together  is  as  difficult  as  it  to  make  Irish- 
men and  Englishmen  agree  on  political  views.  The 
Turk  is  a  fighter  and  an  agriculturalist.  The  com- 
mercial instinct  is  completely  left  out  of  his  make-up. 
Left  to  itself  a  Turkish  community  might  starve, 
because  it  would  lack  the  ability  to  exchange  its  goods 
efficiently. 

The  Greek  has  the  commercial  instinct  in  a  high 
degree,  and  so  all  through  the  Turkish  Empire  the 
Greek  has  performed  the  necessary  service  of  digging 
the  channels  for  commerce.  His  commercial  honor  is 
not  high,  and  now  we  know,  after  a  brief  experience 
in  Asia  Minor,  that  he  has  little  political  administra- 
tive ability.  Greece  had  hardly  landed  on  the  west 
shore  of  Asia  Minor  before  she  started  inland  to  sub- 
due the  Turk,  to  extend  her  political  influence  and  to 
give  play  to  her  racial  antagonism.  There  is  no 
atrocity  with  which  the  Turk  was  ever  charged  but 
can  be  matched  in  Greek  administration  and  warfare. 

The  advent  of  Greece  in  Asia  Minor  brought  a 
chain  of  events  that  the  Allies  were  not  anticipating. 
The  end  of  the  war  found  the  Turk  humbled  and  pre- 
pared to  accept  direction.  Immediately  after  the 
armistice,  a  number  of  Turkish  government  and  mili- 
tary officials  came  to  Admiral  Bristol,  the  American 
High  Commissioner  at  Constantinople,  with  a  state- 
ment signed  by  a  large  number  of  important  men,  that 


72  WHAT  NEXT  IN  EUROPE? 

if  the  United  States  would  take  a  mandate  over 
Turkey  they  would  accept  our  rule  gladly  and  would 
turn  over  their  administration  and  army  without  ny 
resistance  whatever  and  with  every  possible  degree  of 
cooperation.  If  the  United  States  had  taken  a  man- 
date for  all  Turkey,  it  would  have  met  with  almost 
universal  Turkish  approval.  The  United  States  would 
not  have  done  that  had  the  opportunity  been  offered, 
but  the  Allies  were  careful  not  to  make  the  offer.  In- 
stead they  suggested  the  impossible  political  task  of 
a  mandate  for  Armenia. 

When  the  Greeks  started  inland  from  Smyrna, 
something  happened  that  was  not  anticipated.  The 
nationalistic  temper  among  the  Turks  blazed  up  sud- 
denly. The  Turks  in  Asia  Minor  felt  that  the  gov- 
ernment of  the  Sultan  was  no  longer  a  government 
of  free  action.  Constantinople  was  held  in  military 
occupation  by  the  Allies.  The  Sultan  and  his  govern- 
ment were  looked  upon  by  the  population  of  Asia 
Minor  as  automatons,  with  the  strings  that  governed 
their  action  in  the  hands  of  the  Allies. 

Believing  this,  and  with  a  white-heat  determination 
to  resist  the  Greek  invasion,  they  set  up  a  new  gov- 
ernment at  Angora  under  Mustapha  Kemal.  Kemal 
is  no  ordinary  man.  His  strength  had  made  him  dan- 
gerous to  the  Turkish  government  in  the  early  days 
of  the  war,  when  they  tried  to  dispose  of  him  by  send- 
ing him  to  Gallipoli,  to  defend  what  they  believed  was 


THE  POISON  TREATIES  OF  PARIS         73 

a  lost  cause.  The  success  of  his  defense  was  so  great 
that  the  Gallipoli  campaign  became  one  of  the  great 
Allied  tragedies  of  the  war,  and  Kemal  Pasha  became 
a  national  hero.  He  found  it  easy  to  rally  about  him, 
when  the  Greek  invasion  started,  all  the  nationalistic 
sentiment  of  Asia  Minor,  and  to-day  he  has  a  power- 
ful independent  government  whose  seat  is  at  Angora. 

If  I  have  appraised  rightly  the  situation  in  Asia 
Minor,  and  my  views  have  been  formed  on  high  testi- 
mony, the  permanency  of  Greek  occupation  is  impos- 
sible. If  you  put  two  highly  bred  bulldogs  into  a 
pen  together  and  left  them  to  fight  it  out,  you  would 
have  about  as  humane  a  situation  as  you  have  with 
Turks  and  Greeks  both  attempting  to  rule  in  Asia 
Minor. 

The  Treaty  of  Sevres,  which  was  designed  to  make 
terms  of  peace  with  Turkey,  was  never  ratified  by  any 
party  to  it  and  has  permanently  fallen  in  the  waste- 
basket  of  European  politics. 

Venizelos  charmed  the  peace-makers  of  Paris  and 
they  unwisely  carved  out  an  empire  for  Greece. 
Along  the  whole  northern  coast  of  the  ^Egean,  Mace- 
donia and  Thrace  were  cut  away  from  Jugo-Slavia, 
Bulgaria  and  Turkey  and  were  given  over  to  Greek 
administration. 

This  has  resulted  in  a  monumental  failure  in  po- 
litical administration.  Hundreds  of  thousands  of 
Turks,  Bulgarians  and  Slavs  have  been  turned  into 


74  WHAT  NEXT  IN  EUROPE? 

homeless  refugees,  and  are  to-day  crowding  Belgrade, 
Sofia  and  Constantinople. 

The  territory  of  the  old  Turkish  Empire  that  is  left 
in  Europe  is  only  enough  ground  about  Constantinople 
for  market  gardens.  A  modern  gun  on  the  Greek 
border  could  shell  Constantinople  with  ease.  The  city 
is  cut  off  from  all  means  of  support.  For  the  time 
being  at  least,  Asia  Minor  is  separated  from  Constan- 
tinople by  an  economic  space  that  cannot  be  bridged. 
There  is  no  commercial  communication  between  this 
great  city  and  Asia  Minor.  The  countries  surround- 
ing the  Black  Sea  are  economic  deserts.  No  food 
comes  west  through  the  Dardanelles.  Constantinople, 
its  population  augmented  by  three  hundred  thousand 
refugee  Turks,  and  by  thousands  of  penniless  Rus- 
sians, must  import  everything  it  eats,  wears  or  uses. 
There  is  not  a  manufactory  of  any  kind  in  the  city. 

The  situation  in  which  the  Treaty  of  Sevres  and 
subsequent  acts  have  left  Constantinople  is  a  danger- 
ous threat,  not  only  to  the  stability  of  the  Near  East 
but  to  the  lives  of  the  one  and  a  half  million  people 
of  Constantinople  who  have  been  left  in  extreme  eco- 
nomic insecurity.  The  carving  up  of  the  Hapsburg 
Empire  has  left  Austria  with  its  one  great  city  sup- 
ported by  a  thin  strip  of  Alpine  country.  It  has  been 
characterized  as  a  nation  economically  deprived  of 
arms  and  legs.  If  that  is  the  way  to  characterize  the 
economic  position  of  Austria,  what  is  to  be  said  of 


THE  POISON  TREATIES  OF  PARIS         75 

Constantinople?  It  is  a  head  severed  from  the 
body. 

The  Treaty  of  Sevres,  then,  established  the  poor 
administration  of  the  Greek  Government  over  a  num- 
ber of  new  possessions;  it  started  a  new  war  in  Asia 
Minor  and  it  broke  up  the  old  peaceful  arrangements 
between  the  Turks  and  Greeks  by  which  the  trading 
of  the  latter  marketed  the  produce  raised  by  the  Turks. 
It  has  created  hatreds  where  there  was  some  basis 
for  cooperation  before. 

The  Treaty  of  Trianon  by  which  the  terms  of  peace 
were  imposed  upon  Hungary  has  been  characterized 
by  Lord  Newton  as  "the  most  disastrous  and  senseless 
action  for  which  international  statesmen  have  been 
responsible." 

If  there  could  be  a  just  weighing  of  war  guilt,  Hun- 
gary would  probably  have  to  shoulder  no  small  bur. 
den  of  responsibility.  But  whatever  that  responsi- 
bility may  be,  she  must  have  fully  expiated  it  in  the 
horrors  of  peace. 

The  revolution  which  followed  the  downfall  of  the 
Hapsburgs  brought  to  Hungary  a  government  which 
placed  Count  Karolyi  for  a  short  time  in  the  presi- 
dency of  an  extemporized  republic.  The  Magyar  lan- 
guage is  a  vigorous  one  but  it  lacks  words  to  express 
the  contempt  in  which  Karolyi  is  regarded.  His  gov- 
ernment is  called  "the  preparatory  government" — 
preparatory  for  Bolshevism.  He  released  Bela  Kun 


76  WHAT  NEXT  IN  EUROPE? 

from  jail  and  resigned  the  government  into  his  hands. 
Then  Hungary  suffered  Bolshevism  directed  from 
Moscow. 

This  episode  has  faded  into  insignificance  in  their 
minds  in  comparison  with  the  suffering  the  Allies  im- 
posed upon  the  nation  when  they  turned  Roumania 
loose  to  descend  upon  the  capital  and  "save  Europe 
from  a  spread  of  Bolshevism."  If  Hungarian  testi- 
mony can  be  at  all  credited,  this  was  an  invasion  which 
can  never  be  forgotten  nor  forgiven.  The  Bolshevists 
gathered  together  the  loot  of  a  nation;  the  Rou- 
manians carried  it  away.  They  carried  away  every- 
thing that  was  movable.  An  American  officer  stand- 
ing with  drawn  sword  at  the  gate  of  the  Art  Museum 
was  all  that  kept  them  from  looting  its  treasures. 
There  are  thousands  of  decaying  freight  cars  and  hun- 
dreds of  rusting  engines  on  the  side  tracks  of  Rou- 
manian railroads  which  were  looted  from  Hungary. 
The  only  service  they  have  performed  was  to  carry 
out  of  Hungary  every  movable  thing  of  value  on 
which  the  Roumanians  could  lay  their  hands.  The 
Hungarians  regard  this  remedy  for  Bolshevism  dis- 
pensed at  the  hands  of  the  Allies  as  a  cure  which  was 
worse  than  the  disease. 

All  that  is  but  a  bit  of  background  for  considering 
the  Treaty  of  Trianon.  No  weapon  was  ever  more 
savagely  used  in  the  war  than  was  the  map-maker's 
pen  in  drawing  the  new  Hungary.  Hungary  had 


THE  POISON  TREATIES  OF  PARIS         77 

been  a  consolidated  kingdom  for  a  thousand  years, 
and  its  boundaries  had  been  delineated  by  nature. 
Mountains  and  rivers  formed  those  boundaries.  Few 
countries  in  the  world  had  been  better  outlined  by 
geographical  conditions.  Most  of  the  people  compos- 
ing it  were  of  related  stock.  The  treaty  formed  out 
of  the  center  of  the  old  kingdom  a  new  and  little 
nation.  Nearly  two-thirds  of  the  territory  and  the 
population  of  old  Hungary  was  carved  away;  not  an 
old  boundary  remained.  Of  all  the  mutilations  of  the 
Great  War,  this  mutilation  of  the  Peace  stands  out 
in  sharp  preeminence. 

Let  me  give  here  the  view  of  one  of  the  highest 
of  Hungarian  officials: 

"To  the  last  man  Hungary  believes  that  her  treatment 
at  the  hands  of  the  Allies  has  been  unjust.  Hungary  was 
not  morally  to  blame  for  the  war.  She  was  dragged  into 
it  against  her  will.  She  had  long  been  bound  an  unwill- 
ing partner  to  Austria.  Once  war  was  declared,  how- 
ever, there  was  no  other  course  open  to  her  as  an  hon- 
orable nation  but  to  go  into  the  war.  She  could  not  be 
a  renegade  and  violate  her  agreement  as  Italy  had  done. 
She  could  not  wait  until  she  felt  she  could  guess  where 
her  best  interests  lay  as  Roumania  had  done.  She  was 
forced  to  fight  but  she  fought  without  political  ambition. 
She  had  no  designs  on  any  one's  territory.  She  fought 
with  more  chivalry  than  any  other  nation  in  this  horrible 
contest  of  modern  warfare. 

"When  Peace  came,  the  Paris  map-makers  ruthlessly 


78  WHAT  NEXT  IN  EUROPE? 

mutilated  Hungary.  They  wanted  to  reward  her  neigh- 
bors. Her  territory  was  taken  from  her  not  because 
there  was  any  racial  justification  for  it  or  indeed  jus- 
tification of  any  kind.  It  was  done  to  satisfy  rapacious 
neighbors  whom  the  Peace  Conference  wanted  to  reward 
for  the  more  or  less  doubtful  help  they  had  rendered 
the  Allies. 

"Nearly  two-thirds  of  the  old  kingdom  was  given  to 
Czecho- Slovakia,  Austria,  Jugo-Slavia  and  Roumania. 
Paris  was  not  satisfied  in  giving  Hungarian  territory  to 
nations  that  had  helped  the  Allies  but  handed  over  a  west- 
ern slice  to  Austria  and  cut  close  to  the  heart  of  the  old 
kingdom  in  giving  Transylvania  to  Roumania. 

"The  treatment  which  Hungarians  received  in  these 
segregated  territories  made  life  for  them  in  their  old 
homes  impossible.  More  than  three  hundred  thousand 
Hungarians  have  been  driven  from  them  to  seek  refuge 
in  the  present  mutilated  kingdom. 

"The  Peace  Conference  declared  that  minorities  living 
in  annexed  territories  should  have  fair  and  just  treat- 
ment, and  then,  without  waiting  to  see  that  their  decrees 
were  made  effective,  turned  over  the  task  of  making  good 
that  guarantee  to  the  League  of  Nations.  The  League 
of  Nations  has  proved  an  impotent  body  for  enforcing 
such  decrees  of  justice.  Minorities  have  appealed  to  it 
in  vain.  The  Council  seldom  meets.  When  it  does,  there 
are  speeches  but  not  actions.  Commissions  are  sent  to 
investigate  but  nothing  further  happens.  It  not  only 
failed  to  accomplish  the  purpose  for  which  it  was  created, 
but  it  prevented  individual  nations  from  listening  to  ap- 
peals. They  could  not  interfere  because  the  protection 
of  minorities  was  the  responsibility  of  the  League." 


THE  POISON  TREATIES  OF  PARIS         79 

After  the  terms  of  the  Treaty  of  Trianon  came  to 
be  understood,  there  flamed  up  in  what  was  left  of 
Hungary  white-hot  irredentist  feeling.  Every  po- 
litical thought  and  motive  was  molded  into  a  deter- 
mination that,  some  day,  this  mutilated  country  should 
regain  its  old  boundaries.  On  the  door  of  every  house 
in  Budapest  was  nailed  a  map  that  showed  the 
boundaries  of  the  old  kingdom,  within  which  were  the 
lines  of  mutilation  that  the  new  map-making  had 
drawn.  Under  this  map  was  the  legend  in  Magyar: 
"No!  Never,  never !" 

Instead  of  a  healing  Peace,  the  Treaty  of  Trianon 
has  created  a  nation  with  enemies  on  every  border. 
It  has  aroused  a  spirit  in  that  nation  which,  fanned 
into  flame  by  universal  belief  in  the  utter  injustice 
of  the  treatment  received,  may  some  day  erase  these 
new  borders  with  blood. 

Instead  of  Europeanizing  the  Balkans,  the  treaty 
of  Paris  has  come  dangerously  near  Balkanizing  Cen- 
tral Europe. 

I  found  the  Magyars  inclined  to  illustrate  what  they 
felt  had  happened  to  them  by  supposititious  examples 
of  political  parallels.  They  said  that  the  taking  away 
of  Transylvania  and  placing  it  under  Roumanian 
domination  would  compare  to  cutting  off  New  Eng- 
land and  placing  it  under  the  rule  of  Mexico.  The 
parallel,  they  thought,  would  be  well  drawn  if  we  had 
lost  the  war  and  the  enemy  had  redrawn  our  map  in 


8o  WHAT  NEXT  IN  EUROPE? 

a  way  that  gave  to  enemy  powers  half  our  territory 
and  had  then  clipped  off  our  Pacific  Coast  and  had 
given  it  to  our  associate,  Italy,  and  had  transferred 
Florida  to  another  associate,  Serbia.  Such  illustra- 
tions are  extreme,  of  course,  but  there  is  foundation 
enough  for  them  in  the  way  territory  of  the  old  Hun- 
garian kingdom  was  distributed  to  foe  and  friend 
alike. 

The  economic  blindness  with  which  these  new  fron- 
tier lines  were  drawn  was  even  greater  than  the  po- 
litical blunders.  One  finds  beet  fields  on  one  side  of 
the  national  line  and  the  factory  that  should  turn  the 
product  into  sugar  on  the  other  side.  Lines  of  trans- 
portation are  so  cut  that  they  cease  to  be  of  much 
economic  value.  Tariff  barriers  have  divided  old 
friends. 

Hungarians  in  the  segregated  territories  have  suf- 
fered persecutions  that  make  it  impossible  for  them 
to  continue  to  live  there.  Czecho-Slovakia  decreed 
that  former  Hungarian  lands  could  be  bought  at  1914 
prices  and  paid  for  in  1920  depreciated  currency. 
Jugo-Slavia  cut  up  large  agricultural  tracts  that  were 
Hungarian  owned  on  the  theory  that  they  wanted 
small  peasant  holdings,  but  no  Hungarian  peasant 
could  acquire  title  to  a  new  holding. 

The  Government  in  Transylvania  is  characterized 
by  even  English  observers  as  "profoundly  unsatis- 
factory." Under  Roumanian  rule,  Transylvania  is 


THE  POISON  TREATIES  OF  PARIS         81 

largely  governed  by  secret  police,  who  seem  to  have 
taken  Bolshevistic  Russia  as  a  model.  Any  native 
may  be  brought  before  the  Roumanian  secret  police 
and  sentenced  without  legal  proceedings.  They  are 
flogged  and  sent  to  prison  without  any  assigned  rea- 
son. The  Roumanian  language  has  been  made  com- 
pulsory. Land  owners  are  dispossessed  and  houses 
are  requisitioned  on  the  merest  pretext,  while  the 
grossest  corruption  prevails  among  officials. 

There  is  poison,  not  healing,  in  the  Treaty  of 
Trianon. 

When,  at  Paris,  the  new  nation  of  Poland  was  ex- 
temporized, and  no  guiding  forces  were  created,  ob- 
vious necessary  precautions  were  neglected  in  a  way 
that  threatens  the  permanent  existence  of  reconsti- 
tuted Poland.  The  Poles  were  without  political  ex- 
perience, for  they  had  been  excluded  from  govern- 
ment for  generations.  They  had  to  create  the  ma- 
chinery for  the  government  of  a  nation  of  thirty  mil- 
lions overnight,  and  the  material  out  of  which  they 
had  to  build  the  new  government  was  utterly  un- 
trained to  the  responsibilities  of  government.  Poland 
was  left  with  indistinct  borders  on  every  side  and 
with  the  Red  Army  of  Bolshevism  threatening  to 
strike  at  its  heart.  It  is  small  wonder  that  mistakes 
were  made.  It  would  have  been  impossible  to  have 
proceeded  without  making  almost  fatal  errors.  Those 
mistakes  have  already  bankrupted  Poland,  perhaps  not 


82  WHAT  NEXT  IN  EUROPE? 

irretrievably,  for  it  is  a  rich  country,  but  for  the 
time  being  it  presents  a  sorry  financial  spectacle,  and 
as  a  political  unit  it  is  unstable. 

I  have  said  little  about  the  Treaty  of  Versailles 
and  the  treatment  of  Germany  and  Austria,  or  about 
the  claims  for  reparation,  the  terms  of  which  are  ob- 
viously impossible  of  enforcement. 

The  contrast  between  the  spirit  of  the  Fourteen 
Points  and  the  spirit  of  the  Treaty  of  Versailles  is 
complete.  If  one  were  looking  for  material  to  sup- 
port a  condemnation  of  the  morals,  the  politics,  the 
economics  and  the  justice  which  it  evidences,  he  need 
not  go  to  enemy  sources.  Many  sweeping  condemna- 
tions of  the  Treaty  have  been  printed  in  England, 
over  the  signatures  of  some  of  the  most  eminent 
British  citizens. 

To  take  up  the  subject  thoroughly  in  a  way  that 
would  logically  analyze  the  nature  of  the  impositions 
would  form  the  basis  of  a  whole  book  rather  than  one 
paragraph  in  a  chapter.  I  have  chosen  to  emphasize 
some  of  the  other  Treaties  of  Paris  rather  than  the 
Treaty  of  Versailles. 

There  is  far  more  resentment  against  Germany  in 
the  American  mind  to-day  than  there  is  in  the  British. 
And  it  is  a  sad  fact  that  there  is  throughout  France 
greater  unfriendliness  toward  England  than  toward 
Germany,  while  in  England  there  is  a  more  critical 
attitude  toward  France  than  toward  Germany.  Tes- 


THE  POISON  TREATIES  OF  PARIS         83 

timony  from  many  sources  in  each  country  confirms 
that  view.  There  is  little  solidarity  among  the  Allies 
in  their  attitude  toward  the  Treaties.  They  condemn 
various  clauses  from  different  points  of  view  but  they 
do  not  present  a  solid  front  of  agreement  concerning 
their  wisdom  or  justice. 

There  was  a  moment  when  the  United  States  could 
have  played  a  great  role  in  shaping  the  Treaties.  At 
the  opening  of  the  Peace  Conference,  this  country 
had  an  enormous  prestige.  We  had  successfully  ac- 
complished a  great  military  effort.  The  potential  pos- 
sibilities of  that  effort  had  great  weight  in  terminat- 
ing the  war.  It  was  on  other  grounds  than  that,  how- 
ever, that  the  extraordinary  position  we  occupied 
rested.  Our  pronouncement  as  to  war  aims,  our  dec- 
larations in  regard  to  terms  of  peace,  were  on  a  high 
moral  plane  and  captured  the  imagination  of  the  peo- 
ple of  Europe.  Had  we  steadfastly  held  to  the  pro- 
gram we  laid  down,  the  history  of  the  world  since 
the  armistice  would  have  been  a  far  different 
affair. 

When  we  entered  the  war  and  prosecuted  it  with 
vigor,  and  when  we  enunciated  the  principles  upon 
which  we  believed  Peace  should  be  established,  we 
unquestionably  assumed  responsibilities  in  regard  to 
Europe.  Gradually  we  resigned  that  leadership,  ig- 
nored that  responsibility,  and  withdrew  from  active 
participation  in  post-war  developments.  All  Europe 


84  WHAT  NEXT  IN  EUROPE? 

feels  that  we  made  a  moral   failure,  however  great 
our  material  effort  may  have  been. 

My  feeling  is  that  the  various  Peace  Treaties  that 
were  written  at  Paris  contained  much  that  was  un- 
just and  unsound.  Magnanimity  was  wholly  lacking. 
The  Treaties  were  dictated  in  a  spirit  of  reprisal,  re- 
venge and  selfishness,  and  in  economic  blindness. 
The  evils  that  flow  from  those  unhappy  facts  are  in- 
juring Europe  more  seriously  than  did  the  war  itself. 


PART  II 
ECONOMIC  CHAOS 


CHAPTER  VI 
GERMANY  AND  THE  INDEMNITY 

IN  attempting  an  examination  of  the  economic  con- 
ditions in  the  various  individual  European  nations  I 
shall  start  with  Germany.  With  the  exception  of 
Russia  which,  for  the  present  at  least,  is  off  the  eco- 
nomic map,  Germany  is  the  most  populous  of  Eu- 
ropean countries.  But  her  future  is  uncertain,  for 
her  economic  structure  is  subject  to  great  disabilities, 
and  she  is  weighed  down  under  so  many  burdens  that 
it  is  difficult  to  see  how  her  prosperity  can  be  reestab- 
lished. In  the  solution  of  her  problems  other  nations 
are  involved  to  a  great  degree.  The  bankruptcy  of 
Germany,  the  total  collapse  of  the  elaborate  framework 
of  her  financial  and  economic  life  might  drag  down 
the  rest  of  Europe  with  it.  Certainly  France,  Eng- 
land, Italy,  all  of  the  remaining  countries  in  which 
disintegration  is  being  at  least  outwardly  checked 
would  be  staggered  by  the  blow. 

The  situation  of  Germany  is  perhaps  the  most  dra- 
matic of  all  the  European  nations.  If  Germany  falls, 
the  dissolution  which  has  engulfed  the  Eastern  States, 
Austria,  Poland  and  Russia  may  sweep  gradually  from 
the  Vistula  :o  the  Rhine,  from  the  Danube  to  the  North 

87 


88  WHAT  NEXT  IN  EUROPE? 

Sea.  Already  that  area  of  financial  instability  involves 
a  considerable  part  of  the  earth's  surface.  Can  any 
one  believe  that  it  can  be  held  in  check  at  the  banks 
of  the  Rhine? 

Let  us  look  first  at  the  obvious  and  external  con- 
ditions that  Germany  presents  to  the  traveler.  The 
railroad  on  which  you  first  enter  Germany  is  stamped 
with  the  sign  manual  of  poverty.  The  cars  are 
those  that  were  in  use  before  the  war  and  present  the 
appearance  of  a  self-respecting,  clean,  but  almost  pa- 
thetically poor  individual  dressed  in  clothes  of  many 
patches.  The  original  red  velvet  upholstery  of  the 
first  class  carriages  has  almost  disappeared  under  re- 
enforcements  of  jute  and  cotton  duck.  The  car  I  was 
in  had  three  quite  different  fabrics  visible  in  its  up- 
holstery, but  the  train  was  on  time  and  the  service 
excellent. 

In  Germany  as  elsewhere  it  had  been  a  summer  of 
severe  drought.  The  fields  were  not  in  as  bad  con- 
dition as  in  southern  England.  They  had  yielded  an 
excellent  harvest  of  grain,  but  the  root  crops  were 
sadly  affected,  especially  the  potato  crop  upon  which 
so  much  dependence  is  placed  by  German  labor.  There 
was  evidence  of  this  in  the  market  quotations,  potatoes 
having  doubled  in  value  in  a  few  weeks'  time. 

Even  from  the  train  one  could  see  from  the  factory 
smoke-stacks  that  Germany  was  busy.  Unlike  any 
other  country  in  Europe,  there  was  also  activity  in 


GERMANY  AND  THE  INDEMNITY         89 

the  building  trade;  a  great  many  working  men's  homes 
were  being  constructed  in  industrial  towns. 

I  was  told  that  at  the  great  Krupp  works  in  Essen 
six  thousand  more  men  were  employed  than  at  the 
outbreak  of  war,  although  the  number  is  of  course 
less  than  it  was  at  the  height  of  the  industrial  activity 
during  the  war.  The  Krupp  plant  is  perhaps  the  most 
notable  achievement  in  the  world  in  its  transforma- 
tion from  a  forge  of  Vulcan  to  a  workshop  of  peace. 
Every  imaginable  sort  of  manufactured  article  for 
peace-time  use  is  being  turned  out.  They  were  mak- 
ing locomotives  at  the  rate  of  thirty-five  a  month. 
Some  of  them  were  for  the  Russian  Soviet  Govern- 
ment, for  which  an  advance  payment  had  been  made 
through  Sweden  in  gold,  and  there  were  to  be  further 
payments  as  the  work  progressed.  Others  were  being 
built  for  the  Government  of  Roumania. 

The  Krupp  works  are  producing  a  great  variety 
of  agricultural  implements,  many  of  which  it  may  be 
noted  are  modeled  exactly  along  the  lines  of  those 
produced  by  American  manufacture.  Their  activities 
run  through  an  endless  list,  embracing  typewriters, 
surgical  instruments,  safety-razors.  Indeed  it  would 
be  hard  to  mention  any  article  of  this  character  which 
is  not  on  their  list  of  production. 

In  showing  an  American  officer  through  the  plant, 
one  of  the  Krupp  directors,  coming  to  the  door  of 
a  great  shop  which  had  formerly  been  devoted  to 


90  WHAT  NEXT  IN  EUROPE? 

the  making  of  a  vast  amount  of  ammunition,  threw 
up  his  hands  and  remarked,  "A'ch  Gott,  Cream 
separators !" 

The  Krupp  works,  with  a  keen  eye  to  economic 
advantage,  were  built  around  the  mouth  of  a  coal  pit, 
so  that  their  motive  power  came  from  coal  for  which 
there  were  no  transportation  charges.  Under  the 
Treaty  of  Versailles,  Germany  had  to  furnish  France 
with  a  vast  amount  of  coal,  and  the  Reparation  Com- 
mission demanded  that  part  of  it  should  come  from 
the  mine  within  the  Krupp  works.  The  plant  is  now 
being  run  with  lignite,  shipped  in  from  outside. 

The  Krupp  works,  like  most  of  the  fully  employed 
factories  in  Germany,  are  working  eight  hours  a  day. 
Here,  as  almost  everywhere  else  in  the  world,  there 
is  complaint  of  inefficiency  as  compared  with  the  unit 
output  of  pre-war  days.  Krupp  officials  state  that 
their  men  were  working  at  sixty  or  seventy  percent 
of  pre-war  efficiency  but  indicated  that  the  situation 
was  improving. 

An  American  observer  could  not  help  being  im- 
pressed by  the  extensive  and  indulgent  care  that  the 
concern  exercised  over  the  welfare  of  its  labor.  In- 
deed a  book  could  be  written,  and  ought  to  be  written, 
to  tell  what  Germany  is  doing  in  that  direction  at  the 
present  time.  She  is  not  only  engaged  in  what  may 
be  termed  welfare  work,  but  also  in  bridging  the  gap 
between  labor  and  the  management  by  cooperative 


GERMANY  AND  THE  INDEMNITY         91 

agreements.  Labor  is  securing  a  voice  in  matters 
concerned  with  its  immediate  surroundings  and  in 
many  other  ways  the  German  employer  is  setting  an 
example  that  employers  in  America  and  elsewhere 
might  well  heed. 

Among  the  greatest  of  Germany's  immense  indus- 
trial establishments  is  the  Allgemeine  Electriche 
Gesellschaft.  I  am  not  sufficiently  expert  to  compare 
this  plant  with  similar  electrical  industries  in  America. 
But  an  American  who  had  thoroughly  inspected  these 
works  and  who  is  familiar  with  our  great  General 
Electric  Company,  told  me  that  the  shops  were  fully 
up  to  the  mechanical  standards  of  the  Schenectady 
works.  In  these  works  labor  efficiency  is  said  to  be 
back  to  ninety  percent  of  the  pre-war  standard. 

After  leaving  the  train,  we  motored  for  a  consid- 
erable distance  in  Germany.  Roads  everywhere  were 
in  good  order  and  there  was  evidenced  a  determina- 
tion to  keep  them  so  by  giving  the  "stitch  in  time" 
that  we  so  neglect  at  home.  Towns  were  clean,  parks 
were  surprisingly  well  kept,  and  in  that  respect  offered 
a  great  contrast  to  those  that  we  had  just  left  in  Eng- 
land, where  a  combination  of  drought  and  neglect  had 
worked  sad  havoc. 

Externally,  Berlin  does  not  present  a  particularly 
unusual  appearance.  There  are  a  number  of  war- 
crippled  beggars  asking  alms  in  the  streets,  but  not 
so  many  as  I  had  seen  in  uniform  in  London  shaking 


92  WHAT  NEXT  IN  EUROPE? 

contribution  boxes  at  the  passerby.  People  are  not 
well  dressed,  but  they  are  not  notably  shabby.  In 
mid-summer  the  police  were  surprisingly  down  at  the 
heel,  but  in  the  autumn  most  of  them  had  at  least 
parts  of  new  uniforms.  The  shops  offer  an  ample 
variety  of  goods,  with  prices  in  striking  contrast  to 
those  of  the  English  shops.  If  one  wished  to  buy  an 
article  for  export,  however,  the  retailer  shook  his  head. 
Everything  that  is  exported  must  have  a  special  tax, 
for  the  Allies  demand  as  part  of  the  indemnity  pay- 
ment, twenty-six  percent  on  every  exported  article. 
German  export  trade  must  manufacture  so  cheaply 
that  it  can  compete  under  this  handicap. 

A  superficial  observer  who  made  his  point  of  ob- 
servation the  dining  room  of  a  first  class  hotel,  or 
Unter  den  Linden  and  Leipzigerstrasse  at  night, 
might  find  it  hard  to  reconcile  the  evidences  of  luxuri- 
ous expenditure  with  the  story  of  a  financially  stricken 
nation.  If  he  asked  for  an  explanation,  he  would  get 
it  in  one  bitter  word,  "Schieber,"  which  translated 
means,  profiteer.  Germany  intended  to  win  the  war, 
and  did  not  handicap  her  efforts  by  too  close  an  in- 
spection of  individual  profits. 

Since  the  war  the  widely  fluctuating  value  of  the 
mark  has  made  it  possible  for  the  fortunate  speculator 
to  make  far  greater  profits  than  the  merchant  or  the 
manufacturer.  Those  who  have  had  the  luck,  or 
speculative  skill,  to  accumulate  profits  which  have 


GERMANY  AND  THE  INDEMNITY         93 

little  or  no  relation  to  service  rendered  spend  their 
money  readily,  like  most  people  who  make  easy  gains. 
Consequently,  the  hotel  lobbies,  the  restaurants,  and 
the  night  cafes  evidence  an  extravagance  that  would 
be  most  misleading  if  they  were  accepted  as  substan- 
tial economic  indices. 

As  a  German  said  to  me :  "You  will  see  extravagant 
expenditure  not  only  in  Berlin  but  in  almost  every 
European  city,  including  Vienna.  But  the  sights  in 
the  expensive  restaurants  and  in  the  gay  night  resorts 
are  but  the  hectic  flush  on  the  cheek  of  the  dying 
patient." 

Perhaps  the  comparison  was  too  picturesque,  but  it 
undoubtedly  had  force.  External  appearances  are  in- 
teresting and  must  be  given  a  very  considerable 
weight  for  they  are  accurate  evidences  of  the  funda- 
mental disease,  if  they  are  properly  interpreted.  The 
luxury  and  extravagance  that  can  be  seen  in  these 
cities  is  not  the  result  of  prosperity  but  of  unsound 
speculation  and  profiteering,  and,  in  a  sense,  of  despair 
of  what  the  next  day  will  bring. 

I  had  ample  opportunities  to  talk  with  leading 
figures  in  the  government  of  the  new  republic.  At 
the  outset  I  will  say  that  the  many  interviews  which 
I  had  with  them  left  me  with  a  feeling  of  respect  for 
them  and  of  confidence  in  their  integrity.  Later  I 
found  my  opinion  of  them  fully  shared  by  some  of  the 
most  distinguished  statesmen  in  England  and  France. 


94  WHAT  NEXT  IN  EUROPE? 

Wirth,  the  Chancellor,  who  is  in  the  position  that 
Bismarck  once  held,  is  not  a  spectacular  figure  but 
after  meeting  him  you  feel  assured  of  his  ability  and 
his  honesty  of  purpose.  He  is  a  strongly  built,  middle- 
aged  man,  German  but  not  Prussian  in  appearance. 
He  comes  from  academic  ranks,  having  for  years  held 
the  chair  of  mathematics  in  one  of  the  German  uni- 
versities. He  impressed  me  as  being  a  man  of  great 
courage  and  he  certainly  has  good  economic  insight. 
He  faces  facts  as  they  are  and  sees  them  in  an  orderly 
and  logical  way.  While  his  attitude  was  courageous, 
he  was  certainly  not  a  blind  optimist.  He  wasted  no 
time  in  discussions  of  the  past  and  did  not  complain 
of  the  unfairness  of  the  victors.  But  he  had  at  his 
fingers'  ends  the  figures  and  facts  of  Germany's  eco- 
nomic dilemma.  He  presented  them  to  me  honestly 
and  with  scientific  comprehension  of  their  meaning. 
What  they  meant  to  him  was  plain.  He  believed  that 
unless  there  can  be  some  change  in  the  economic  fac- 
tors governing  the  situation  the  financial  ruin  of  Ger- 
many is  certain. 

Next  to  Herr  Wirth,  the  most  important  man  in 
the  direction  of  the  new  republic  at  the  moment  is 
Walther  Rathenan.  I  knew  his  father  twenty  years 
ago  when  he  was  building  the  great  organization  of 
the  Allgemeine  Electriche  Gesellschaft  and  when  he 
was  one  of  the  very  greatest  figures  in  German  in- 
dustry. His  son  succeeded  to  the  father's  position 


GERMANY  AND  THE  INDEMNITY         95 

and  left  the  chairmanship  of  the  board  to  become  Min- 
ister of  Reconstruction.  The  son,  however,  not  only 
had  to  his  credit  a  successful  business  career  but  has 
been  a  thinker  and  writer  upon  social  affairs  and  in- 
dustrial relations  in  a  way  that  has  made  him  one  of 
the  best  known  men  in  Germany.  His  writings  upon 
industrial  relations  and  matters  connected  with  poli- 
tics and  capital  place  him  squarely  in  the  ranks  of  the 
radicals.  I  had  read  much  that  he  had  written  and 
had  formed  the  opinion  that  he  had  grown  so  radical 
that  it  must  interfere  with  his  administrative  ability 
in  practical  industrial  affairs.  I  made  a  good  many 
inquiries  in  this  regard  among  financiers  and  others 
and  was  surprised  to  find  that  even  the  most  con- 
servative bankers  regarded  Herr  Rathenau  as  one  of 
the  ablest,  if  not  the  most  able,  man  in  Germany.  He 
is  a  Hebrew  and  although  still  a  young  man,  he  often 
talks  in  a  language  of  parable  that  brings  to  mind 
the  imaginative  mental  qualities  of  the  Hebrew 
fathers. 

A's  Herr  Rathenau  knew  that  I  expected  to  write 
something  of  our  interview  it  is  therefore  not  im- 
proper for  me  to  attempt  to  reproduce  it.  In  a  way, 
it  is  unfair,  however,  because  I  cannot  reproduce  its 
vigor,  its  picturesqueness,  nor  adequately  give  the 
sense  of  vision  and  prophecy  with  which  it  affected 
my  own  mind.  While  I  have  put  it  into  the  form  of 
a  direct  interview,  it  is  written  entirely  from  memory 


96  WHAT  NEXT  IN  EUROPE? 

and  Herr  Rathenau  should  not  be  held  responsible  for 
the  words  which  I  attribute  to  him. 

"The  greatest  difficulty  in  the  way  of  setting  the 
world  right  again  lies  in  the  deep  racial  and  national 
prejudices  of  great  masses  of  people.  There  are  a 
few  people  who  have  international  understanding,  a 
few  people  with  minds  sufficiently  objective  to  reach 
just  international  conclusions.  But  the  minds  of  the 
great  underlying  masses  lie  solidly  frozen  by  preju- 
dice. It  is  like  some  parts  of  Siberia  where  the  soil 
in  winter  is  frozen  many  feet  deep  and  under  the 
summer  sun  softens  on  the  surface  only  for  a  few 
inches.  Underneath  there  lies  immovable  solid  frozen 
ground.  The  propaganda  used  by  everyone  in  the 
last  seven  years  has  contributed  terribly  to  this  freez- 
ing of  the  minds  of  the  masses  and  it  is  those  frozen 
minds  that  offer  the  great  obstacle  to  getting  the  world 
back  to  orderly  cooperation. 

"The  world  believes  Germany  is  guilty,  that  she 
caused  the  war  and  is  responsible  for  its  horrible  con- 
sequences. If  there  could  only  be  some  sort  of  a 
world  court  that  could  try  the  case,  where  the  facts 
could  be  sifted  and  weighed  by  unprejudiced  men  and 
a  just  verdict  rendered!  Our  sixty  million  people 
cannot  all  be  guilty  criminals,  although  a  good  part 
of  the  world  seems  to  think  so.  Are  we,  and  our  chil- 
dren and  our  children's  children,  to  bear  for  genera- 


GERMANY  AND  THE  INDEMNITY        97 

tions  the  blame  for  what  some  of  our  leaders  led  us 
into,  sometimes  against  our  own  protest? 

"When  President  Wilson  came  to  Europe,  he  enun- 
ciated certain  principles  and  drew  up  a  program.  He 
committed  the  United  States  to  both.  Later,  the  peo- 
ple of  the  United  States  said,  'We  will  not  accept  it; 
we  are  not  responsible  for  the  program  to  which  our 
leader  committed  us!' 

"As  matters  stand  I  see  little  that  any  one  can  do 
for  Germany.  It  is  idle  to  talk  of  foreign  loans, — • 
they  would  be  no  permanent  benefit  to  us  in  the  pres- 
ent state  of  affairs.  We  can  make  the  first  indemnity 
payments  and  for  some  months  we  can  meet  the  obli- 
gations defined  by  the  London  conference.  But  that 
is  all. 

"I  foresee  that  Germany  is  to  be  the  sweatshop  of 
Europe.  Our  falling  mark  will  make  us  terrible  com- 
petitors in  the  markets  of  the  world.  Other  nations 
will  erect  tariff  barriers  against  us.  In  doing  that 
they  will  make  it  impossible  for  us  to  pay.  Then  the 
mark  will  fall  further  and  our  competition,  so  long 
as  the  depreciation  of  the  mark  goes  on  more  rapidly 
than  the  rise  in  wages,  will  become  more  terrible, 
while  our  domestic  situation  will  grow  worse  and 
worse." 

Then  Herr  Rathenau  uttered  a  prophetic  warning. 
It  was  not  couched  in  the  form  of  a  threat  but  rather 


98  WHAT  NEXT  IN  EUROPE? 

as  a  prophecy  of  possible  universal  disaster.  The 
thought  was  by  no  means  new  to  me ;  it  is  a  possibility 
to  which  I  have  given  a  great  deal  of  consideration. 

"Let  the  world  beware  of  presenting  to  Germany 
a  cup  that  is  too  full  of  misery.  The  German  people 
naturally  are  not  Bolshevistic;  they  are  indeed  most 
obedient  and  law-abiding  people.  Perhaps  that  has 
been  one  of  their  gravest  faults — they  have  been  too 
docile.  But  there  are  limits  that  even  docile  Germans 
cannot  endure  without  some  blind  writhing  towards 
relief. 

"Remember  this :  for  over  two  thousand  years  there 
has  been  a  wavering  line  stretching  from  the  South 
to  the  North  and  dividing  this  Continent  into  Eastern 
and  Western  Europe.  Western  Europe  has  been  the 
seat  of  what  we  call  'advancing  civilization/  Out  of 
it  has  come  all  that  the  world  has  accomplished  in  the 
way  of  modern  progress.  Eastern  Europe  is  Oriental, 
Asiatic,  barbaric.  Time  and  time  again  it  has  thrown 
its  masses  against  the  civilization  of  the  West.  It 
overflowed  Greece.  It  was  always  a  threat  against 
Rome.  In  modern  times  it  swept  westward  almost 
to  the  doors  of  Vienna. 

"This  division  line  between  the  East  and  the  West, 
this  real  boundary  of  Asia,  in  modern  times,  has 
rested  on  the  Vistula.  Let  the  world  beware  that  it 
is  not  moved  from  the  Vistula  to  the  Rhine,  with 
three  hundred  millions  to  the  east  of  the  line.  Poland 


GERMANY  AND  THE  INDEMNITY         99 

could  not  stand,  nor  could  the  countries  of  the  south. 
If  Germany  were  to  turn  to  the  left,  not  as  far  as 
Bolshevic  Communism  but  far  enough  so  that  Bol- 
shevic  Communism  which  is  now  turned  toward  the 
right  could  be  met  on  some  sort  of  common  ground, 
the  two  might  flow  together.  Then  the  line  separat- 
ing the  Western  Europe  of  civilized  progress  from 
the  Eastern  Europe  of  Oriental  barbarism  would  move 
towards  the  West  with  an  impetus  such  as  it  has 
never  had  before  in  history. 

"Germany  wants  to  continue  in  Western  Europe. 
Every  instinct  is  to  be  a  part  of  that  group  of  peo- 
ples that  stand  for  advancing  civilization,  but  it  is  con- 
ceivable that  if  her  misery  becomes  too  bitter,  the  seed 
of  radicalism,  which  may  be  found  almost  anywhere 
in  Germany  to-day,  might  grow  a  fearful  crop." 

The  other  German  officials  whom  I  met  did  not  seem 
disposed  to  discuss  the  justice  of  the  terms  of  peace. 
Germany  had  met  with  military  defeat  and  must  ex- 
pect to  pay  in  indemnity  all  that  she  could  pay.  Nor 
did  there  seem  to  be  any  great  amount  of  hesitation 
in  admitting  the  disastrous  errors  of  leadership  under 
the  Hohenzollerns. 

Among  financial  and  industrial  leaders,  however,  I 
found  a  somewhat  different  attitude  of  mind.  Many 
eminent  representatives  of  finance  and  industry  seemed 
to  believe  that  Germany  had  been  attacked  and  the 
war  was  a  war  of  defense.  They  expressed  them- 


ioo  WHAT  NEXT  IN  EUROPE? 

selves  in  a  manner  that  indicated  that  they  had  no 
doubt  on  the  subject.  To  an  American  that  attitude 
seemed  utterly  grotesque.  When  I  heard  these  sober, 
capable  and  practical  men  speaking  as  if  it  were  a 
matter  of  undeniable  historical  record,  I  was  as- 
tounded. 

But  I  am  certain  the  conviction  that  Germany  was 
not  the  aggressor  is  widespread.  An  American  edu- 
cator who  had  been  spending  several  weeks  traveling 
throughout  Germany  to  learn  what  was  being  taught 
in  the  public  schools  in  regard  to  the  Great  War,  told 
me  that  the  oncoming  generation  of  Germans  were 
being  raised  to  unquestioned  belief  that  Germany  had 
fought  a  defensive  war.  They  were  told  that  she  had 
not  initiated  hostilities  but  had  been  the  victim  of 
excessive  outside  pressure.  It  seemed  to  me  the  rank- 
est sort  of  propaganda  on  which  foundations  of  fu- 
ture war  were  being  solidly  laid. 

At  first  I  had  not  the  patience  to  examine  the  belief 
of  my  financial  and  industrial  acquaintances  that  Ger- 
many was  the  victim  and  not  the  aggressor.  It  was 
interesting  to  see  how  they  marshaled  the  events  just 
before  and  after  the  fateful  thirtieth  of  July  and  how 
they  led  themselves  to  draw  the  deduction  that  war 
had  been  forced  upon  Germany. 

The  formula  is  simple.  In  the  minds  of  these  men, 
Russia  was  the  direct  cause.  They  present  what  pur- 
ports to  be  evidence  of  mobilization  of  Russian  troops 


GERMANY  AND  THE  INDEMNITY       101 

well  in  advance  of  German  mobilization.  They  de- 
clare that  they  now  have  evidence  that  this  program 
on  the  part  of  Russia  actually  began  as  far  back  as 
March,  1914,  when  soldiers  by  train  loads  began  to 
be  moved  westwards  from  Siberia. 

I  did  not  find  a  man  in  an  important  position  out- 
side of  the  government  who  did  not  bitterly  criticize 
the  blatant  foolishness  of  Wilhelm  II  in  the  years 
preceding  the  war,  nor  who  did  not  condemn  the  war 
lust  of  the  Prussian  military  party.  But  undoubtedly 
men  of  intelligence  and  great  breadth  of  experience 
are  firmly  convinced  that  the  Russian  mobilization 
was  the  immediate  cause  of  the  war.  This  is  trans- 
lated to  mean  that  Germany  was  attacked  by  Russia 
and  that  the  war  that  followed  was  in  defense  of  the 
fatherland. 

The  course  of  the  Emperor  in  announcing  himself 
some  years  before  the  benevolent  protector  to  the 
Mohammedan  world  was  declared  to  be  one  of  the 
conspicuous  examples  of  his  absurd  egotism.  The 
blindness  and  general  failure  of  the  German  foreign 
policy  was  conceded,  particularly  the  policy  which 
prevented  Russia  from  controlling  Constantinople 
and  thus  from  obtaining  real  freedom  of  access  to 
the  seas.  It  was  said  that  Germany's  attempts  to  re- 
strain Russia  in  that  direction  had  been  unwise  and 
provocative,  for  if  she  had  given  Russia  a  free  hand 
from  the  Dardanelles  to  the  Bosphorus  there  would 


102  WHAT  NEXT  IN  EUROPE? 

have  been  no  war.  The  Franco-Russian  alliance  left 
no  other  course  open  but  to  attack  France,  it  was  de- 
clared, after  Russian  mobilization  became  a  fact.  By 
some,  the  passage  through  Belgium  was  regarded  as 
a  mistake,  by  others  as  an  unwelcome  necessity.  The 
U-Boat  policy  came  in  for  a  great  deal  of  condem- 
nation and  the  course  which  made  America's  entrance 
into  the  war  inevitable  was  laid  as  a  heavy  charge 
against  the  old  German  leaders. 

The  point  which  an  important  official  advanced  as 
indicating  the  fundamental  cause  of  the  war  struck 
me  as  interesting. 

"Whenever  a  second  son  was  born  into  a  farmer's 
family  in  Germany,"  he  said,  "it  meant  that  an  addi- 
tion had  been  made  to  the  industrial  workers.  The 
land  was  already  subdivided  into  as  small  holdings 
as  were  economical  from  the  point  of  view  of  man- 
agement. The  first  son  might  succeed  to  the  father's 
agricultural  status,  but  succeeding  sons  had  to  look 
for  careers  in  industry.  This  meant  that  industrial 
opportunity  had  to  be  developed,  that  fresh  foreign 
markets  must  be  commanded,  that  international  rela- 
tions were  shaped  in  the  light  of  commercial  expan- 
sion. The  pressure  of  population  was  the  force  that 
really  caused  the  war." 

I  was  impressed  by  the  fact  that  some  of  these  old 
acquaintances  who  had  spoken  English  with  perfect 
fluency  in  pre-war  days  no  longer  had  their  old  com- 


GERMANY  AND  THE  INDEMNITY       103 

mand  of  that  language.  Not  only  that,  but  men  who 
before  the  war  had  a  wide  knowledge  of  world  af- 
fairs and  an  intimate  understanding  of  conditions  in 
other  nations,  had  admittedly  grown  provincial.  They 
said  that  for  five  years  they  had  been  shut  off  almost 
completely  from  any  reliable  understanding  of  condi- 
tions in  other  countries.  Since  the  armistice  they  had 
easier  access  to  the  conditions  in  other  countries,  but 
the  news  that  reached  them  was  so  impregnated  with 
vindictiveness  that  it  was  difficult  for  them  to  arrive 
at  trustworthy  conclusions. 

As  I  have  said,  the  highest  officials  of  the  German 
Government  completely  accepted  Germany's  defeat  and 
its  penalties.  There  was  no  discussion  whatever  of 
their  liability  to  pay  a  huge  indemnity.  It  seemed 
to  me  that  they  accepted  as  axiomatic  that  defeated 
Germany  should  have  to  pay  all  that  she  could.  But 
on  the  question  of  how  much  she  would  be  able  to 
pay  there  was  much  to  be  said. 

The  London  Conference  fixed  the  indemnity  at  one 
hundred  and  thirty-two  billion  gold  marks,  plus 
twenty-six  percent  of  the  gold  value  of  all  exports, 
in  addition  to  certain  payments  in  kind,  the  chief  of 
which  is  the  great  annual  contribution  of  coal.  This 
is  calculated  to  make  a  total  annual  gold  payment  of 
three  and  a  quarter  to  three  and  a  half  billion  gold 
marks,  or  approximately  eight  hundred  million  dollars 
in  gold  annually. 


104  WHAT  NEXT  IN  EUROPE? 

It  is  an  elemental  economic  fact  that  a  nation  placed 
as  Germany  is  to-day  can  only  make  such  a  series  of 
payments  by  creating  the  credit  through  exports.  This 
means  that  she  must  export  a  sufficient  amount  of 
manufactured  goods,  for  she  has  very  little  raw  ma- 
terial to  export,  except  what  is  already  commandeered 
as  part  of  the  indemnity  payment. 

She  must  first  pay  for  the  food  imports  she  needs, 
since  her  domestic  production  of  food  is  not  sufficient 
to  maintain  the  existence  of  her  sixty  million  people. 
Next  she  must  pay  for  the  raw  material  that  enters 
into  the  industrial  cycle  by  which  her  manufactured 
products  for  export  are  created.  She  must  further 
provide  the  amount  necessary  to  make  the  yearly  pay- 
ment of  three  billion  two  hundred  and  fifty  million 
to  three  billion  five  hundred  million  in  gold,  that  has 
been  assessed  against  her.  In  this  discussion  I  am 
taking  no  note  of  the  increased  amount  that  it  is  pro- 
vided that  Germany  must  pay  in  the  future,  but  only 
of  the  immediate  indemnity  requirements. 

There  has  been  a  great  deal  of  loose  thinking  about 
the  ability  of  a  nation  to  continue  indemnity  payments 
on  so  huge  a  scale.  The  accomplishment  of  France 
in  the  payment  of  the  two  billion  dollars  of  indemnity 
laid  on  her  after  her  defeat  by  Germany  in  1870  is 
frequently  used  to  prove  Germany's  ability  to  pay. 
France  made  those  payments  in  advance  of  the  dates 
set  in  the  Treaty,  and  quickly  turned  out  the  Army  of 


GERMANY  AND  THE  INDEMNITY       105 

Occupation.  Why,  it  is  argued,  should  not  Germany 
do  the  same.  But  the  conditions  facing  France  in 
1871  and  those  facing  Germany  to-day  are  in  no  wise 
comparable.  The  war  had  been  comparatively  short, 
the  material  injury  was  not  great,  and  the  loss  of  life 
cannot  be  compared  with  the  terrible  slaughter  of  the 
Great  War.  A  more  significant  difference  was  that 
the  area  involved  was  small.  All  Europe  outside  of 
France  and  Germany  was  unaffected  and  the  rest  of 
the  world  was  economically  unconcerned. 

France  paid  her  indemnity  by  two  means.  She  held 
a  large  amount  of  foreign  investments  and  credits 
upon  which  she  could  realize.  She  was  also  in  a  po- 
sition to  command  fresh  credits  from  a  world  that 
was  rich  enough  to  grant  them.  From  these  two 
sources  her  obligation  was  paid  and  the  slate  was 
cleaned. 

The  situation  that  Germany  faces  is  utterly  different. 
She  must  pay,  not  a  lump  sum,  but  a  continuing  obli- 
gation that,  if  carried  out,  will  lay  a  heavy  hand  upon 
the  lives  of  her  youngest  children.  She  no  longer 
domestically  owns  any  great  amount  of  foreign  obli- 
gations. Her  citizens  had  investments  in  the  United 
States  amounting  to  about  eight  hundred  million  dol- 
lars, but  every  dollar  of  theirs  that  we  could  uncover 
we  have  seized  and  are  retaining  to  meet  the  losses 
that  A'merican  citizens  incurred  through  German 
"fright fulness."  Her  investments  in  other  countries 


io6  WHAT  NEXT  IN  EUROPE? 

were  likewise  confiscated.  Her  colonial  possessions 
and  all  the  enterprises  of  the  government  and  of  indi- 
viduals in  her  colonies  have  been  torn  from  her.  Her 
profitable  merchant  marine  has  been  divided  among 
the  victors. 

She  is  without  the  credit  which  would  enable  her  to 
incur  new  foreign  obligations  on  any  extensive  scale. 
Her  indemnity  payments,  therefore,  measured  as  they 
are  in  gold,  or  to  speak  more  exactly,  in  exchange 
to  be  provided  in  the  currencies  of  Paris,  London  and 
New  York,  can  only  be  met  by  excess  of  exports  over 
imports.  In  addition  she  must  provide  for  her  food 
necessities  and  pay  for  her  required  imports  of  raw 
materials.  To  accomplish  this  stupendous  task,  to  find 
these  yearly  sums  of  thousands  of  millions,  she  will 
have  to  develop  an  enormous  export  trade. 

Germany  must  market  this  huge  bill  of  goods  in  a 
world  whose  international  trade  is  demoralized,  and 
to  customers  whose  means  of  payment  have  been  ter- 
ribly curtailed  and  whose  only  future  means  of  pay- 
ment must  lie  in  their  successful  ability  also  to  market 
goods  or  produce.  She  must  sell  her  goods  at  prices 
that  will  successfully  compete  with  the  established 
trade  of  England,  and  with  the  mighty  competitive 
forces  for  massed  production  which  have  been  built 
up  in  the  United  States. 

She  must  successfully  meet  prices  quoted  by  Bel- 


GERMANY  AND  THE  INDEMNITY       107 

gian  manufacturers,  which  will  compel  her  to  work 
at  low  cost,  owing  to  Belgium's  absolute  need  to  ex- 
port in  order  to  pay  her  food  bill.  The  same  is  true 
of  the  competition  which  Germany  must  meet  in 
Switzerland,  in  Czecho-Slovakia,  in  Holland  and  in 
Sweden.  The  industrial  establishments  of  all  these 
nations  feel  keenly  the  stimulated  competition  of  Ger- 
man industry.  They  are  erecting  customs  barriers  so 
that  German  goods,  after  they  have  hurdled  the 
twenty-six  percent  export  duty  imposed  by  the  Allies, 
must  encounter  the  customs'  exactions  of  the  govern- 
ments of  her  various  customers. 

The  indemnity  payment,  it  must  be  remembered, 
must  be  met,  not  by  German  exporters  who  must 
primarily  create  the  foreign  credits,  but  by  the  Ger- 
man Government.  To  do  that  the  Government  must 
impose  and  collect  sufficient  domestic  taxes  for  that 
purpose.  Those  taxes  are  collected  in  paper  marks. 
They  must  be  sufficient  first  to  meet  the  ordinary  ex- 
penses of  the  Government  and  then  to  provide  for 
the  huge  deficit  piled  up  by  the  state-owned  railroads 
each  month,  and  for  other  extraordinary  expenditure 
due  to  the  war. 

The  German  Treasury  must  provide  a  sufficient 
amount  of  paper  marks  to  purchase,  at  the  current  rate 
of  exchange  for  paper  marks,  the  total  of  foreign 
exchange  represented  by  the  fixed  gold  equivalent  of 


io8  WHAT  NEXT  IN  EUROPE? 

the  indemnity.  With  every  decline  in  the  exchange 
quotation  for  paper  marks  the  Treasury's  need  is  in- 
creased. 

The  problem  presented  to  the  Finance  Minister  of 
Germany  resolves  itself  into  an  attempt  to  balance  a 
budget  in  which  the  most  important  items  on  the  debit 
side  are  of  a  fluctuating  character ,  increasing  with  any 
decline  in  the  exchange  value  of  the  mark.  In  pro- 
viding for  ordinary  Government  expenditures  it  is 
impossible  to  determine  with  any  degree  of  certainty 
any  of  the  items  which  involve  the  payment  of  sala- 
ries or  wages,  or  the  purchase  of  goods,  for  with 
the  falling  mark  salaries  and  wages  must  rise  and  the 
cost  of  goods  advance. 

This*  is  well  illustrated  by  Germany's  experience 
with  her  state-owned  railroads,  which  will  in  this 
fiscal  year,  it  is  estimated,  show  a  loss  of  nineteen 
billion  marks.  Even  that  figure  is  only  an  estimate, 
and  will  be  increased  by  the  amount  that  wages  have 
to  be  increased,  or  that  materials  advance  because  of 
the  falling  value  of  the  mark. 

Another  burden,  and  naturally  it  is  a  very  sore  one, 
is  the  cost  of  the  army  of  occupation  which  now  con- 
sumes fifty  billion  paper  marks  a  year,  and  is  ad- 
mitted by  every  one  concerned  to  be  vastly  larger  than 
there  is  any  military  or  political  necessity  for.  The 
Government  will  also  be  required  to  raise  twenty-one 
billion  marks  to  pay  to  the  domestic  producers  of  coal 


GERMANY  AND  THE  INDEMNITY       109 

for  the  annual  contribution  of   fuel  which  must  be 
made  to  the  conquerors. 

The  German  budget  for  1921-1922  has  therefore 
items  on  its  debit  side  that  have  been  doubled  since 
the  recent  days  when  the  budget  was  overhauled  be- 
cause of  the  decline  of  the  mark.  If  it  continues, 
these  items  may  be  doubled  again.  It  is  difficult 
therefore  to  state  what  the  principal  items  of  that 
budget  are,  because  they  are  constantly  fluctuating. 
But  it  is  apparent  that  after  taxes  and  the  income 
from  all  other  possible  sources  have  been  received 
the  deficit  will  amount  to  a  colossal  sum. 

How  is  that  deficit  to  be  met  ?  In  our  preliminary 
discussion  it  was  pointed  out  that  a  government  can 
only  meet  a  deficit  in  its  domestic  budget  by  making 
loans,  or  by  printing  paper  currency. 

In  its  attempt  to  raise  taxes,  the  German  Govern- 
ment has  gone  so  far  as  to  lay  a  fifty  percent  tax 
upon  all  capital.  Indeed,  in  its  highest  reaches  the 
capital  tax  goes  as  high  as  sixty-five  percent.  This 
does  not  have  to  all  be  paid  at  once,  for  it  would  of 
course  be  a  financial  impossibility,  and  the  payments 
have  been  extended  over  fifteen  years,  with  the  unpaid 
balance  bearing  five  percent  interest. 

With  such  a  burden  of  taxation  it  is  obvious  that 
even  if  capital  had  great  confidence  in  the  financial 
future  of  Germany,  there  would  be  a  lack  of  invest- 
ment in  fresh  German  obligations.  But  capital  has 


i io  WHAT  NEXT  IN  EUROPE? 

no  confidence  in  her  prospects,  and  looks  upon  the 
financial  future  of  Germany  as  abysmal.  Therefore 
the  deficit  in  the  budget  cannot  be  met  by  the  sale  of 
fresh  Government  obligations. 

There  is  thus  only  one  recourse,  the  printing  press, 
and  the  furious  rate  at  which  that  is  being  run  in- 
creases month  by  month. 

As  I  have  pointed  out,  the  creation  of  a  circulating 
medium  in  such  huge  amounts  can  lead  a  nation  in 
only  one  direction.  Germany  is  headed  towards  finan- 
cial ruin. 

I  found  that  there  were  French  political  leaders  who 
charged  German  statesmen  with  the  calculated  design 
of  ruining  the  finances  of  the  new  republic  in  order 
that  it  might  escape  from  the  bondage  of  the  indem- 
nity. They  declare  that  these  German  leaders  are 
willing  to  take  the  risk  of  bankrupting  Germany,  of 
having  Germany  repudiate  her  debt  to  her  own  peo- 
ple, in  order  that  she  might  emerge  with  such  a  clean 
bill  of  health  as  a  bankruptcy  court  can  give.  She 
would  still  have  her  great  industrial  plants  and  her 
population  with  its  skill  and  industry.  They  believe 
that  though  it  might  mean  political  revolution,  she 
would  eventually  face  the  world  without  debt,  if  the 
Allies  were  not  able  to  cope  with  this  scheme  of  cal- 
culated bankruptcy. 

German  leaders  themselves  repudiate  with  the 
greatest  scorn  the  charge  that  they  were  deliberately 


GERMANY  AND  THE  INDEMNITY        in 

conducting  Germany  into  bankruptcy,  for  the  danger 
of  such  a  course  was  far  too  great  to  contemplate. 
It  would  mean  the  fall  of  any  government  that  found 
itself  in  charge  of  the  ship  of  state  when  the  financial 
debacle  came,  and  it  would  be  more  than  likely  to 
result  in  the  overturn  of  the  republic.  Germany  would 
become  the  battleground  between  the  forces  of  reac- 
tion and  the  forces  of  radicalism. 

The  outcome  of  the  disorders  that  would  follow 
would  mean  a  generation  or  more  of  internal  war- 
fare, of  political  dissolution  and  of  social  unrest  and 
upheaval.  It  might  even  attack  the  foundations  of 
the  present  capitalistic  order.  It  was,  they  declared, 
unthinkable  that  any  sane  statesman  would  knowingly 
take  this  risk,  even  to  escape  from  the  unbearable  bur- 
dens of  the  present 


CHAPTER  VII 
ENGLAND 

WHAT  is  to  be  said  of  the  economic  outlook  of  "Great 
Britain? 

The  most  superficial  observer  could  not  miss  the  fact 
that  business  conditions  in  England  are  at  the  mo- 
ment distinctly  unsatisfactory.  There  is  a  great  deal 
of  unemployment.  More  than  a  million  and  a  half 
people  are  receiving  unemployment  doles  and  perhaps 
one  million  more  are  working  on  short  time. 

England  is  at  the  present  time  in  the  midst  of  an 
industrial  and  economic  crisis.  Her  foreign  trade, 
which  is  vital  to  her  business  prosperity,  is  compara- 
tively stagnant.  This  has  occurred  in  spite  of  her  com- 
mercial experience  which  is  superior  to  that  of  any 
other  people  and  in  spite  of  her  genius  for  foreign 
trade  in  which  she  has  been  schooled  through  genera- 
tions. In  the  face  of  the  economic  difficulties  that 
have  resulted  from  the  war,  she  is  still  admitted  to 
have  the  greatest  genius  in  the  world  for  international 
commerce. 

The  prestige  of  England  is  one  of  the  substantial 
facts  of  our  modern  world.  Every  one  believes  in  the 
soundness  of  English  experience  and  in  the  ability  of 

112 


ENGLAND  113 

Englishmen  to  master  difficult  situations.  For  more 
than  a  century  the  trade  of  England  has  been  domi- 
nated by  a  standard  of  commercial  honor  that  has 
built  up  for  her  industries  and  her  merchants  the  high- 
est degree  of  world  confidence.  Her  prestige  is  so 
great  that  I  find  in  considering  the  economic  outlook 
of  England  one  is  disposed  to  take  too  much  for 
granted;  there  is  a  disinclination  to  examine  funda^ 
mentals  as  one  would  in  other  countries.  It  is  easier 
to  assume  that  England  always  has  stood  in  the  fore- 
front of  industrial  and  commercial  nations  and  that 
she  will  always  stand  there.  It  seems  to  be  almost  a 
kind  of  commercial  sacrilege  to  raise  any  question  of 
the  essential  security  of  the  economic  position  of  Great 
Britain. 

My  admiration  for  British  character,  achievement 
and  ability  is  very  great.  I  have  the  highest  regard 
for  English  experience  and  a  firm  belief  in  the  sound 
common  sense  of  the  whole  English  people.  I  am 
convinced  that  if  America  had  a  tithe  of  the  knowl- 
edge and  experience  of  the  English  commercial  world 
she  would  seize  the  commercial  and  financial  oppor- 
tunities that  are  scattered  everywhere  about  her,  and 
place  herself  rapidly  and  firmly  in  the  forefront  of 
the  world's  financial  forces.  But  in  spite  of  the  record 
and  prestige  of  England,  I  believe  the  time  has  come 
when  one  should  not  allow  the  position  which  she  has 
occupied  and  still  occupies  to  close  one's  eyes  to  the 


ii4  WHAT  NEXT  IN  EUROPE? 

necessity  of  a  further  examination  of  the  economic 
basis  upon  which  the  future  of  Great  Britain  rests. 

I  have  frequently  referred  to  the  importance  with 
which  I  regard  the  factor  of  food  supply  in  any  just 
estimate  of  the  economic  position  of  a  nation.  I  have 
suggested  that  in  making  any  wise  economic  forecast 
of  world  conditions  those  nations  which  have  become 
highly  industrialized  and  which  have  bred  a  population 
far  in  excess  of  domestic  ability  to  produce  sufficient , 
food,  must  have  special  consideration.  It  is  as  impor- 
tant to  study  their  food  needs,  their  capacity  to  pro- 
duce goods  in  exchange  for  raw  material  and  food, 
and  to  take  into  account  the  conditions  in  the  coun- 
tries that  have  been  their  customers,  as  it  is  to  analyze 
the  domestic  economic  position. 

England,  at  the  very  beginning  of  the  industrial  age, 
assumed  the  leadership  as  an  industrial  nation.  She 
had  coal  and  iron,  two  of  the  great  corner-stones  of 
industry.  But  she  had  much  more  than  that;  she  had 
a  national  genius  for  industrial  work,  for  industrial 
organization  and  for  commercial  enterprise.  From 
the  beginning,  since  England  was  first  in  the  field,  she 
securely  held  a  position  of  supremacy. 

Under  the  stimulation  of  all  her  advantages,  her 
population  grew  with  great  rapidity,  and  the  numbers 
employed  in  industry  increased  more  rapidly  than  in 
any  other  country.  Men  found  that  it  was  easier  to 
obtain  the  necessities  of  life  by  producing  in  English 


ENGLAND  115 

workshops  the  manufactured  goods  which  other  na- 
tions wanted,  than  it  was  to  stimulate  further  the  agri- 
cultural production  of  the  British  Isles.  With  this  in- 
dustrial prosperity  the  standard  of  living  improved. 

At  the  beginning  of  the  present  century,  however, 
two  great  industrial  competitors  were  in  sight,  Ger- 
many and  America.  Germany  was  showing  a  genius 
for  industrial  development  and  international  trade 
that  compared  very  favorably  indeed  with  England's. 
In  America,  with  its  vast  homogeneous  population, 
certain  industries  had  built  up  systems  of  mass  pro- 
duction which  allowed  American  manufacturers  to 
compete  successfully  in  a  limited  number  of  manufac- 
turing lines  in  spite  of  high  wages. 

England's  food  problem  was  becoming  serious,  and 
English  manufacturers  felt  themselves  forced  to  resist 
the  demand  of  labor  for  higher  wages,  because  higher 
wages  would  have  threatened  England's  command  of 
industrial  markets.  If  England  was  to  continue  to 
compete  successfully  with  the  growing  industrial  es- 
tablishments of  Germany,  and  with  a  few  American 
manufactories  that  were  securing  the  advantage  that 
came  from  mass  production  on  an  unexampled  scale, 
she  had  to  keep  her  wage  bill  within  limits. 

She  was  successful  in  limiting  wages;  in  a  sense 
almost  too  successful.  She  found  that  she  was  mak- 
ing an  overdraft  on  the  physical  future  of  the  race. 
In  many  manufacturing  towns  there  had  been  bred  a 


n6  WHAT  NEXT  IN  EUROPE? 

race  of  Englishmen  unlike  the  sturdy  native  type. 
Great  numbers  of  men  were  so  restricted  in  their 
scale  of  living  that  it  began  to  show  in  their  physical 
stature.  Industry  did  not  yield  sufficient  surplus  re- 
turns to  maintain  adequate  housing  facilities  for  Eng- 
lish workmen,  at  least  the  returns  were  not  used  for 
that  purpose.  The  unwholesome  living  conditions 
were  doubtless  reflected  in  industrial  output,  as  well 
as  in  a  lowered  standard  of  physique. 

England  had  to  provide  the  foreign  credit  to  pay 
for  huge  amounts  of  food,  since  English  fields  yielded 
not  over  one  hundred  days'  supply.  At  least  thirty 
million  of  the  British  population  had  to  be  fed  by 
imported  food,  and  it  was  necessary  in  some  way  to 
provide  constantly  the  credits  in  the  international  ex- 
changes which  would  pay  for  that  food  supply. 

In  the  main  it  was  paid  for  in  the  form  of  manu- 
factured goods,  but  England  had  many  other  ways 
to  help  balance  her  foreign  trade.  More  than  a  cen- 
tury of  successful  commerce  had  accumulated  great 
investments  in  foreign  enterprises.  At  the  outbreak 
of  the  war  England  held  more  than  four  billion  pounds 
in  foreign  securities,  and  the  interest  on  these  invest- 
ments helped  to  augment  the  credits  obtained  by 
the  export  of  manufactures.  She  was  most  advan- 
tageously placed  in  respect  to  fuel.  Not  only  did  she 
have  enough  for  her  own  use,  but  she  exported  end- 
less cargoes  of  coal.  This  export  movement  per- 


ENGLAND  117 

formed  a  double  economic  function;  it  helped  to  pro- 
vide foreign  credits  with  which  to  pay  her  food  bill, 
and  it  furnished  an  outgoing  cargo  for  her  merchant 
marine.  These  outgoing  cargoes  helped  to  establish 
the  English  mercantile  marine  in  its  preeminent  posi- 
tion. The  earnings  of  shipping  also  played  a  most 
important  part  in  paying  for  imported  food,  for  Eng- 
lish ships  carried  not  only  her  own  goods  but  a  great 
part  of  the  water-borne  commerce  of  the  world. 

Financial  strength  had  gone  hand  in  hand  with  in- 
dustrial supremacy.  England  became  the  great  world 
reservoir  of  capital,  and  by  all  odds  the  strongest 
world  power  in  finance.  Her  earnings  were  very  large, 
and  made  an  important  invisible  contribution  toward 
balancing  her  foreign  trade. 

Another  great  advantage  which  she  had  in  making 
her  food  imports  was  that  she  was  trading  in  a  well- 
ordered  commercial  world  and  was  conducting  her 
operations  with  the  shrewdness  born  of  long  experi- 
ence. One  might  picture  England  as  an  immense  fig- 
ure stationed  over  the  Baltic  Exchange,  holding  a 
gigantic  but  infinitely  delicate  set  of  balances.  On  one 
side  she  weighed  with  great  accuracy  the  needs  of 
England;  on  the  other  the  exact  output  of  all  the  agri- 
cultural producing  fields  of  the  world.  Here  centered 
the  nerves  of  commercial  intelligence,  providing  the 
most  complete  information  of  yield  and  stocks  to  a 
perfect  financial  organization.  The  distribution  of 


Ii8  WHAT  NEXT  IN  EUROPE? 

produce  from  anywhere  in  the  world  was  facilitated 
from  here  with  ample  credit,  and  commerce  moved  in 
orderly  fashion.  England  sat  before  these  chemical 
balances  weighing  needs  against  world-wide  stores  of 
supply.  She  made  the  market.  The  price  of  wheat 
was  not  influenced  by  the  opinions  of  Kansas  farm- 
ers; it  was  not  made  on  the  Chicago  Board  of  Trade; 
it  was  fixed  on  the  Baltic  Exchange,  and  England 
bought  her  food  supplies  as  cheaply  as  was  humanly 
possible. 

Those  pre-war  days  were  a  period  of  increasing 
production.  England's  population  grew  because  the 
Mississippi  Valley  was  opened,  because  the  plains  of 
the  Argentine  were  brought  under  cultivation,  because 
Russia  and  Roumania  were  steadily  more  productive 
until  they  became  of  enormous  importance  in  the  sup- 
ply of  grain.  Whatever  rate  of  progress  the  industrial 
expansion  of  England  attained,  however  rapidly  the 
population  of  England  increased,  there  were  ample 
food  supplies  to  exchange  for  the  products  of  her 
factories. 

Even  with  all  these  advantages,  however,  it  was  not 
clear  sailing  in  the  years  just  before  the  war.  As 
I  have  said,  wages  were  held  down  to  as  low  a  point 
as  employers  could  keep  them.  The  growing  strength 
of  unionism  forced  advances,  but  in  one  of  the  best 
organized  fields  of  union  labor  in  England,  the  Union 
of  Railway  Employees,  there  were  one  hundred  thou- 


ENGLAND  119 

sand  men  who  were  working  for  one  pound  a  week 
or  less.  The  mining  industry,  employing  almost  a 
million  men,  was  paying  an  average  wage  of  about 
thirty  shillings  a  week.  The  competition  of  Germany 
and  the  United  States  was  felt  with  increasing  sever- 
ity. The  growth  of  population  everywhere  in  the 
world,  a  growth  so  rapid  that  it  became  the  greatest 
fact  in  all  modern  history,  was  making  competition  for 
the  world's  food  supplies  more  severe  with  every 
year. 

Then  came  the  war;  the  whole  mechanism  of  com- 
merce was  upset.  European  grain  production  was 
greatly  decreased  and  Russia  disappeared  from  the 
commercial  map  of  Europe.  The  war  was  by  no  means 
fought  entirely  in  the  trenches ;  it  was  a  fundamental 
trial  of  industrial  capacity,  and  there  was  unlimited 
demand  for  labor.  The  Government  Treasury  ap- 
peared an  inexhaustible  source  of  wealth  and  wages 
were  advanced  over  and  over  again.  In  spite  of  hard- 
ships, the  scale  of  living  was  for  the  time  being 
greatly  improved  and  labor  gained  a  new  conception 
of  its  rightfulfchare  from  the  profits  of  industry. 

The  post-wfr  period  found  an  entirely  new  scale 
of  wages  in^Rrce.  Not  only  had  wages  been  ad- 
vanced, but  efficiency  had  declined.  Industry,  under 
the  burden  of  enormously  increased  taxation,  had  to 
go  through  the  trying  period  of  transition  from  a  time 
when  it  was  employed  to  its  uttermost  in  the  manu- 


120  WHAT  NEXT  IN  EUROPE? 

facture  of  the  munitions  of  war  to  the  limited  market 
for  the  productions  of  peace. 

The  war  had  cost  England  a  large  part  of  her 
foreign  investments  and  many  of  those  she  still  held 
were  in  default.  The  shorter  hours  of  labor  and 
increased  wages  added  still  further  to  the  cost  of  coal 
production.  The  terms  of  peace  forced  Germany  to 
supply  no  small  part  of  the  Continental  market,  which 
had  heretofore  been  England's,  with  coal,  and  that  ex- 
port fell  off  sharply.  Just  as  coal  exports  had  been 
advantageous  in  supplying  foreign  credits  and  out- 
going cargoes,  the  decrease  in  coal  exports  became  a 
double  disadvantage.  In  a  world  of  disorganized  com- 
merce the  total  of  sea-borne  commerce  greatly  de- 
creased. There  was  further  competition  for  that  busi- 
ness, and  the  income  of  the  British  mercantile  marine 
fell  from  three  hundred  and  fifty  million  to  seventy 
million  pounds,  and  the  net  profits  to  little  or  nothing. 

There  was  no  longer  the  exact  adjustment  that  had 
enabled  England  to  buy  at  the  lowest  possible  price. 
Russia  made  no  progress  toward  returning  to  the  po- 
sition of  a  producing  and  exporting  nation.  The  rav- 
ages of  war  had  disorganized  agriculture  everywhere 
in  Europe;  farm  animals  were  depleted,  and  the 
cutting-up  of  large  landed  estates  in  Poland,  Rou- 
mania,  Czecho- Slovakia  and  other  countries  had 
resulted  in  decreased  production.  Innumerable  diffi- 
culties hampered  the  free  movement  of  produce. 


ENGLAND  121 

Higher  wages  and  lower  efficiency  operated  adversely 
upon  England's  position  as  an  exporter  and  manu- 
facturer. 

Even  if  all  these  difficulties  had  been  cleared  away, 
and  if  in  the  English  domestic  situation  there  had 
been  not  a  single  loss  in  those  great  invisible  items 
which  had  formerly  helped  to  balance  her  grocery  bill, 
England  would  have  been  face  to  face  with  a  crisis. 
After  the  war,  she  labored  under  two  great  disad- 
vantages. The  most  important  was  the  economic 
status  of  her  customers.  They  wanted  everything  but 
could  pay  for  nothing.  Germany  had  been  England's 
best  customer  on  the  Continent;  Russia  had  been  a 
great  buyer.  Other  Continental  nations  had  stood  at 
her  counter  and  bought  largely  because  they  in  turn 
had  been  able  to  export  their  own  goods.  But  they 
were  no  longer  able  to  do  so  because  of  their  own 
disorganized  markets  and  because  of  those  barbed-wire 
entanglements  which  commerce  encountered  every- 
where on  the  Continent.  There  were  new  difficulties 
from  freshly  fanned  racial  antagonisms,  from  the  new 
national  borders,  from  disorganized  transportation  and 
from  hampering  Government  regulations. 

That  situation  alone  would  have  made  a  crisis  for 
English  exporters,  but  there  was  another  extremely 
important  difficulty  to  face.  Germany's  industrial 
plant  had  not  been  injured  by  the  war;  it  had  been 
stimulated.  Germany  no  longer  has  a  standing  army 


122  WHAT  NEXT  IN  EUROPE? 

of  industrially  idle  men;  the  whole  population  is  at 
work.  It  is  laboring  under  an  impelling  stimulus  to 
export  a  huge  amount  in  order  to  provide  the  foreign 
exchange  necessary  to  meet  the  indemnity  requirements 
and  Germany's  own  food  needs. 

There  is  another  most  important  stimulus  to  Ger- 
man exports,  though  it  is  both  temporary  and  economi- 
cally unsound.  It  results  from  the  steadily  declining 
value  of  the  mark.  That  advantage  can  last  only 
as  long  as  the  decline  goes  on,  but  while  it  is  in  prog- 
ress every  foreign  buyer  of  German  goods  finds  that 
he  has  to  pay  but  part  of  the  cost  of  their  production. 

He  pays  in  the  gold  equivalent  as  measured  by  in- 
ternational exchanges.  The  manufacturer's  internal 
costs  are  met  by  paper  marks.  The  wages  of  labor 
and  other  costs  cannot  possibly  be  adjusted  as  rapidly 
as  the  mark  depreciates,  and  so  the  German  exporter 
finds  himself  in  a  falsely  stimulated  position  of  advan- 
tage. The  products  of  German  industry  are  carried 
on  State  Railroads  whose  freight  rates  have  not  been 
advanced  to  keep  pace  with  the  cost  of  operation,  and 
the  taxpayer  made  a  contribution  last  year  of  seven- 
teen billion  marks  toward  the  operating  deficit,  and 
that  contribution  will  be  larger  this  year.  Because 
of  these  conditions  Germany  has  been  underselling 
England  in  the  foreign  markets. 

So  England  is  facing  a  new  and  very  trying  situa- 
tion. Her  population  continues  to  increase  in  a  some- 


ENGLAND  123 

what  more  rapid  ratio  than  in  pre-war  days.  She 
still  raises  the  grain  supply  for  only  a  hundred  days. 
Her  wages  are  comparatively  high  and  her  labor  effi- 
ciency low.  Unemployment  is  enormous  and  the  bur- 
den of  unemployment  doles  falls  upon  her  Treasury 
and  her  taxpayers.  Her  income  from  foreign  invest- 
ments, from  the  mercantile  marine  and  from  coal 
exports  is  depleted.  She  faces  a  world  which  is  eco- 
nomically impotent  and  she  must  meet  in  neutral  mar- 
kets the  falsely  stimulated  advantages  of  German 
competition. 

In  presenting  this  view  to  American  friends  I  find 
the  most  frequent  answer  is  that  I  have  quite  forgotten 
the  extent  of  the  British  Empire;  that  it  is  substan- 
tially self-sustaining.  This  criticism,  I  think,  is  based 
on  a  failure  to  understand  that  the  Colonies  of  Great 
Britain  from  the  economic  standpoint  are  alien  lands 
to  the  mother  country. 

England  must  pay  for  a  bushel  of  wheat  produced 
in  Manitoba  or  in  Minnesota  by  providing  foreign  ex- 
change. A  bale  of  Australian  wool  must  be  paid  for 
in  the  same  way  as  a  bale  of  Alabama  cotton.  The 
British  Empire  is  not  an  economic  unit.  Colonial  farm- 
ers and  ranchers  cannot  be  paid  for  their  produce  in 
pounds  sterling,  but  in  the  exchanges  of  their  own 
countries,  -which  are  as  difficult  to  secure  as  are  the 
exchanges  that  pay  for  the  products  of  the  Argentine 
or  the  Mississippi  Valley.  They  must  be  created  in 


i24  WHAT  NEXT  IN  EUROPE? 

the  same  way,  by  the  export  of  English  goods  or  by 
those  invisible  items  made  up  from  the  income  on  for- 
eign investments,  earnings  of  the  merchant  marine,  or 
from  similar  sources. 

I  am  aware  that  this  sober  view  of  the  English  sit- 
uation is  shared  by  few  Americans.  I  found  that  it 
'came  as  a  surprise  to  people  on  the  Continent.  The 
prestige  of  England  is  still  so  great  that  it  is  hard 
to  conceive  that  in  relation  to  food  production  she  is 
in  almost  the  same  position  as  Austria.  But  in  Eng- 
land I  found  a  remarkably  clear  realization  of  these 
facts.  Some  of  the  most  responsible  leaders  in  the 
political  and  financial  life  of  England  agreed  completely 
with  my  statement  of  the  basic  situation  that  I  have 
outlined  here.  Though  they  are  facing  it  seriously, 
they  are  fortunately  not  hopeless  about  it.  Neither 
am  I. 

But  as  I  have  pointed  out  before,  of  all  human 
problems  the  food  problem  is  the  most  insistent.  It 
cannot  wait  for  future  readjustments;  the  interna- 
tional grocery  bill  is  a  cash  affair.  England  has  great 
international  resources  still  available  and  for  some 
time  to  come  she  can,  metaphorically,  live  on  her  fat. 
English  labor  is  rapidly  coming  to  its  senses.  It  sees 
that  its  profits  must  be  in  direct  relation  to  the  amount 
it  produces  and  that  it  must  send  out  into  the  markets 
of  the  world  substantially  the  equivalent  of  what  it 
must  have  in  the  way  of  food  and  raw  material.  The 


ENGLAND  125 

false  stimulation  of  German  export  trade  may  last  for 
some  time,  but  it  is  a  passing  phase.  There  is  noth- 
ing permanent  in  the  advantage  that  comes  from  a 
depreciated  currency.  That  advantage  ceases  when  the 
depreciation  has  struck  bottom,  or  wherever  it  halts. 
On  the  other  hand,  there  comes  a  corresponding  dis- 
advantage when  the  effort  is  successfully  made  to 
raise  the  value  of  the  currency. 

It  is  conceivable  that  many  of  the  domestic  diffi- 
culties that  industry  now  faces  may  be  cured,  or  their 
adverse  influence  at  least  greatly  reduced.  Neverthe- 
less, England  must  have  an  orderly  world  of  com- 
merce, a  world  in  which  her  neighbors  are  producing 
and  selling,  if  she  is  to  have  customers  who  can  buy 
her  goods.  And  she  must  have  customers  in  order 
to  live. 

The  English  problem,  therefore,  is  only  partly  a 
domestic  one.  The  fate  of  England  is  most  intimately 
related  to  the  economic  recovery  of  the  Continent  of 
Europe.  There  must  be  substantial  and  rapid  recovery. 
The  terrible  embargoes  upon  trade  must  disappear. 
England's  customers  must  be  economically  rehabili- 
tated and  the  curable  disadvantages  at  home  soon 
removed.  If  these  changes  in  the  present  situation 
are  possible,  England  may  go  on  in  something  like 
her  old  style,  selling  goods  to  the  world  and  buying 
from  the  world  the  food  for  thirty  million  people. 
It  is  conceivable,  however,  that  these  happy  develop- 


126  WHAT  NEXT  IN  EUROPE? 

ments  may  be  delayed.  If  they  are  too  long  delayed, 
I  believe  that  the  great  tragedy  of  Europe  might  still 
be  in  the  future  and  that  its  scene  would  lie  in  the 
British  Isles. 


CHAPTER  VIII 
FRANCE 

IF  a  board  of  expert  accountants  were  to  undertake 
an  examination  of  the  financial  position  of  the  French 
Government  they  would  have  a  difficult  task  to  come 
to  an  agreement  as  to  her  actual  status.  Some  of  the 
results  of  such  an  examination  could  be  predicted  with 
certainty.  The  first  one  would  be  that  figures,  as  well 
as  words,  may  sometimes  be  used  for  the  purposes  of 
concealment.  There  is  a  great  variety  of  opinions 
among  experts  in  regard  to  the  financial  status  of  the 
French  Government,  and  quite  as  great  a  variety  of 
statistical  balances  could  be  drawn  from  the  official 
figures  of  French  Government  finances. 

One  sometimes  sees  the  statement,  for  example,  that 
France  has  substantially  balanced  her  budget.  To  be 
quite  exact  one  might  quote  the  report  of  M.  Bokanow- 
ski,  the  reporter-general  of  the  finance  commission  of 
the  Chamber,  presented  in  November.  The  budget  for 
1922  was  calculated  in  great  detail.  The  revenue  was 
estimated  at  23,300,030,000  francs,  and  the  expendi- 
tures at  24,900,000,000  francs. 

If  one  rested  upon  that  statement  it  would  seem 
to  sustain  an  optimistic  view  of  the  financial  posi- 

127 


128  WHAT  NEXT  IN  EUROPE? 

tion  of  the  Government.  It  is  admitted  that  there  are 
many  untouched  sources  of  revenue,  and  a  great  deal 
of  uncollected  revenue  under  the  present  taxes.  If 
the  Government  can  come  so  near  to  balancing  its 
budget  it  would  seem  to  be  quite  within  the  range  of 
possibility  that  very  soon  French  finances  could  be  put 
upon  a  sound  basis. 

Any  such  deductions  would  be  profoundly  mislead- 
ing. The  method  of  balancing  the  budget  represented 
by  these  figures  gives  a  completely  false  view  of  the 
situation.  The  income  of  France  does  not  come  within 
1,600,000,000  francs  of  equaling  her  expenditures. 
Instead,  the  actual  gap  between  outgo  and  income  is 
nearer  twenty-seven  billion  francs. 

In  studying  the  financial  position  of  France  in  de- 
tail you  find  yourself  in  a  maze  of  interrelated  figures 
presented  under  different  headings.  There  are  ordi- 
nary budgets  and  extraordinary  budgets,  expenditures 
recoverable  from  Germany,  "Reconstruction  Certifi- 
cates," railroad  loans,  and  an  endless  complication  of 
huge  totals,  so  that  it  seems  impossible  to  put  the  na- 
tional financial  position  into  a  single  comprehensive 
statement.  It  simplifies  matters  to  concentrate  on  the 
increase  in  the  Government's  debt,  but  even  a  state- 
ment showing  the  growth  in  France's  national  debt 
does  not  give  a  true  picture  of  her  actual  condition, 
for  all  the  newly  created  national  obligations  are  not 
included  in  it. 


FRANCE  129 

France  spent  in  its  war  effort  two  hundred  and 
eighty  billion  francs.  These  are  the  official  figures 
covering  the  period  from  the  first  of  August,  1914,  to 
the  end  of  June,  1919.  The  revenue  from  taxes  dur- 
ing that  period  amounted  to  sixty  billion  francs;  the 
entire  difference  was  made  up  by  loans  of  various 
kinds.  There  is  now  a  domestic  debt  of  two  hundred 
and  thirty  billion  francs,  and  a  foreign  debt  of  35,286,- 
000,000  francs,  which  ought  rightly  to  be  multiplied 
by  translating  it  into  terms  of  foreign  exchange  in 
which  it  must  be  paid. 

The  growth  in  the  French  debt  since  the  armistice 
has  been  enormous,  in  spite  of  the  fact  that  budget 
statements  have  approximately  seemed  to  balance. 

The  total  debt  of  France  in  the  nine  months  com- 
prised between  January  thirty-first  and  September 
thirtieth,  1921,  increased  from  230,535,000,000  to 
272,842,000,000  francs.  There  are  other  items 
that,  in  an  accurate  analysis,  would  be  added  to 
this. 

The  growth  of  the  debt  has  been  so  rapid  that  it 
has  been  found  quite  impossible  to  fund  it  into  long- 
dated  obligations.  The  treasury  has  outstanding  short- 
term  obligations  of  more  than  sixty-five  billion  francs. 
Most  of  them  mature  in  not  over  six  months,  and  none 
at  a  later  date  than  one  year.  This  amount  alone  is 
twice  the  total  debt  of  France  at  the  outbreak  of  the 
war.  It  may  be  recalled  that  France's  pre-war  debt 


130  WHAT  NEXT  IN  EUROPE? 

was  one  of  the  largest,  per  capita,  in  the  world,  and 
was  so  pressing  that  the  principal  preoccupation  of  the 
treasury  was  to  find  some  method  of  funding  the  rap- 
idly accumulating  floating  debt. 

The  board  of  expert  accountants  that  I  have  sug- 
gested at  the  beginning  of  the  chapter  would  reach  a 
conclusion  in  regard  to  the  obligations  of  France  which 
would  be  startling.  They  would  probably  summarize 
it  with  the  statement  that  France  is  bankrupt.  But 
their  summary,  for  the  present  at  least,  would  be 
wrong. 

An  accountant's  examination  of  the  financial  situa- 
tion of  the  government  made  without  knowledge  of 
the  internal  situation  in  France  would  make  the  situa- 
tion appear  as  hopelessly  critical.  The  single  item  of 
a  floating  debt  of  sixty-five  billion  francs  would  seem 
to  present  a  most  critical  situation,  in  which  the  least 
jar  to  public  confidence  would  make  it  impossible  for 
the  government  to  continue.  Month  by  month  it  must 
be  renewed,  and  investors  must  be  constantly  found 
who  are  ready  to  take  new  securities  to  replace  those 
that  have  matured. 

This  huge  total  of  floating  obligations  remains, 
metaphorically,  in  the  air,  since  it  does  not  rest  on  any 
stable  foundation,  and  it  is  certain  that  great  additions 
must  be  made  to  it.  The  honor  of  France  is  engaged 
to  pay  out  within  the  next  three  years  sixty  billion 
francs  more  for  reparations.  On  the  surface  the  out- 


FRANCE  131 

look  appears  quite  hopeless.  Nevertheless,  in  reality, 
it  is  not  hopeless. 

The  French  investing  public  is  unique.  Ingrained  in 
the  nature  of  the  French  people  is  the  characteristic 
of  thrift.  Probably  in  no  other  country  in  the  world 
could  a  finance  minister  feel  the  slightest  assurance 
that  he  could  maintain  a  floating  debt  of  sixty-five 
billion  francs,  and  in  addition  keep  on  constantly  add- 
ing other  billions.  Conservative,  sober-minded  bankers 
in  France  believe,  however,  that  it  can  be  done.  They 
believe  that  since  nearly  all  of  this  sixty-five  billion 
francs  is  held  by  investors,  the  renewal  of  the  obli- 
gations which  mature  month  by  month  can  be  counted 
upon  by  the  Government  with  certainty. 

Practically  everybody  in  France  is  an  investor. 
They  are  not  prepared  to  take  long-term  Government 
obligations  at  the  present  time,  but  they  automatically 
renew  these  maturing  short-term  treasury  loans,  and 
so  keep  the  market  clear  of  any  unabsorbed  supply. 
The. public  shows  such  complete  ability  to  purchase 
these  renewals  that  it  is  not  improbable  that  they  will 
absorb  the  heavy  future  obligations  which  the  Govern- 
ment will  undoubtedly  have  to  incur.  No  one  can  say 
how  long  this  will  go  on,  nor  predict  the  time  when 
floating  obligations  can  be  funded  and  the  Govern- 
ment feel  some  security  in  regard  to  its  financial  po- 
sition. Its  financial  outlook  is  bound  up  in  the  pros- 
pects of  indemnity  payment.  But  even  if  these  in- 


i32  WHAT  NEXT  IN  EUROPE? 

demnity  payments  are  not  made  in  accordance  with 
the  terms  which  have  been  agreed,  it  is  possible  that 
the  financial  structure  can  be  still  kept  upright. 

I  do  not  propose  to  attempt  to  unravel  the  tangled 
statistics  of  French  finances.  Figures  could  be  ad- 
duced that  would  back  up  any  thesis.  But  the  war 
was  won,  and  perhaps  the  stabilization  of  French 
finance  may  be  accomplished.  I  would  not  predict 
that  it  will  not  be,  but  at  the  same  time  we  must  not 
be  deceived  by  the  assertions,  however  circumstantial 
and  official  they  may  be,  that  France  has  a  substan- 
tially balanced  budget. 

The  work  that  has  been  accomplished  in  the  recon- 
struction of  the  devastated  districts  has  been  little 
short  of  marvelous.  France  is  at  work.  The  total 
of  idle  workmen  receiving  Government  aid  in  the  fall 
of  1921  was  only  thirty-five  thousand.  Contrast  this 
with  England,  where  one  million  six  hundred  thousand 
industrial  workmen  are  receiving  unemployment  doles. 

At  the  end  of  the  war  we  were  told  that  there  were 
vast  agricultural  districts  in  France  which  might  never 
be  restored  to  agricultural  production.  The  wheat  crop 
of  France  in  1921,  however,  was  over  fifty  million 
centals  more  than  in  1920.  (A  cental  is  one  hundred 
pounds.)  Her  wheat  crop  in  1921  is  137  percent  of 
the  crop  in  1920,  and  163  percent  of  the  average  in 
the  five  years  1915-19,  inclusive.  Her  yield  of  rye 
showed  almost  as  great  improvement.  Barley,  oats 


FRANCE  133 

and  corn,  however,  were  not  so  good.  Compared  with 
the  preceding  years,  she  added  one-eighth  to  the  area 
given  up  to  beet  cultivation.  She  added  50  percent  to 
her  wine  production  compared  with  the  war  period. 

In  the  first  nine  months  of  1921  the  food  imports 
of  France  were  materially  less  than  half  what  they  had 
been  in  a  similar  period  of  the  year  before.  From  a 
value  of  9,290,000,000  francs  they  fell  to  4,170,- 
000,000  francs.  She  reduced  her  adverse  trade  bal- 
ance in  respect  of  food  products  from  7,488,000,000 
to  2,786,000,000  francs.  If  one  is  in  doubt  about 
statistics  which  show  values  calculated  in  francs  in 
which  market  prices  and  rates  of  exchange  may  intro- 
duce large  margins  of  error,  they  can  turn  to  the 
figures  in  tons.  In  the  first  nine  months  of  1921 
France  imported  2,774,000  tons  of  food  products, 
while  in  the  same  period  of  the  previous  year  the  fig- 
ure was  4,842,000  tons. 

Figures  are  tiresome,  and  not  always  illuminating, 
but  in  this  case  they  lead  to  an  optimistic  conclusion, 
since  they  reveal  the  extent  of  what  France  has  ac- 
complished. In  addition  to  the  favorable  factors  at 
which  we  have  glanced,  she  manages  to  keep  an  almost 
perfect  balance  in  the  franc  value  of  her  total  imports 
and  exports.  In  that  respect  France  compares  favor- 
ably with  all  the  most  important  nations  in  Europe.  If 
she  can  provide  enough  food  for  her  population  the 
situation  need  not  become  absolutely  desperate,  what- 


134  WHAT  NEXT  IN  EUROPE? 

ever  financial  difficulties  might  develop.  With  yields 
such  as  were  produced  this  year,  it  is  obvious  that  she 
can  feed  herself,  and  that  is  an  exceedingly  important 
element  in  estimating  her  future. 

France,  however,  has  one  problem  for  which  noth- 
ing approximating  a  permanent  solution  has  yet  been 
found.  How  can  the  integrity  of  her  boundaries  be 
permanently  guaranteed?  For  the  moment  she  occu- 
pies the  role  of  conqueror.  She  found  herself  in  a 
position  where  her  voice  was  most  potent  in  dictating 
terms  of  peace. 

So  far  as  Germany  is  concerned,  France  had  two 
aims  that  were  not  compatible.  She  hoped  to  crush 
Germany  so  that  she  would  be  safe  for  generations 
from  a  rehabilitation  of  German  military  and  economic 
power.  At  the  same  time  she  wished  to  impose  upon 
Germany  a  war  indemnity  which  would  approximate 
France's  material  loss  during  the  war.  She  has  stub- 
bornly attempted  to  gain  both  of  these  aims,  although 
success  in  gaining  either  necessarily  means  that  there 
is  small  chance  of  accomplishing  both. 

If  Germany  is  so  crushed  as  to  be  what  France 
would  regard  as  a  safe  neighbor,  she  could  not  pos- 
sibly pay  an  indemnity  which  would  meet  France's 
view  of  what  she  ought  to  have.  If  rehabilitation  in 
Germany  is  permitted  to  an  extent  that  would  enable 
her  to  make  the  reparation  payments  to  France,  Ger- 
many would  become  so  industrially  predominant  that 


FRANCE  135 

she  might  become  more  dangerous  from  a  military 
point  of  view  than  she  has  ever  been  before.  For 
France,  if  Germany  is  not  crushed,  there  remains  the 
possibility  of  substituting  an  alliance  which  would 
promise  safety  even  with  a  rehabilitated  Germany.  A 
necessary  part  of  such  a  program  is  to  win  the  United 
States  to  its  support,  and  France  is  beginning  to  un- 
derstand how  difficult  is  such  a  project. 

In 'almost  every  country  in  Europe  to-day  France 
is  charged  with  being  imperialistic.  Her  ambitions  in 
the  Near  East  have  played  no  small  part  in  creating 
the  present  unhappy  situation  there.  She  has  vigor- 
ously tried  to  make  a  strong  buffer  state  of  Poland, 
which  would  preclude  any  sort  of  unity  of  action  be- 
tween Germany  and  Russia.  She  has  maintained  an 
army  in  the  occupied  districts  of  Germany  which  her 
associates  believe  to  be  unwarrantably  large,  and  she 
is  keeping  up  the  largest  military  establishment  in 
the  world. 

In  France  any  criticism  of  her  attitude  as  imperi- 
alistic is  bitterly  resented.  Her  argument  that  it  has 
been  necessary  for  her  to  maintain  so  large  an  army 
rests  against  a  background  that  seems  to  her  con- 
vincing. 

With  every  month  since  the  Treaties  of  Peace  were 
signed  further  points  of  friction  have  risen  between 
France  and  England.  Many  people  told  me  that  on 
the  part  of  the  French  people  generally  there  is  less 


136  WHAT  NEXT  IN  EUROPE? 

antagonism  toward  Germany  than  toward  Great 
Britain  and  I  am  inclined  to  believe  it  is  approximately 
true.  The  fact  is  clearly  emerging  that  the  interests 
of  France  and  of  Great  Britain  are  not  parallel.  Eng- 
land would  like  to  see  Germany  restored  to  her  eco- 
nomic strength  before  the  war,  for  she  is  her  most 
important  Continental  customer.  In  France  it  is  de- 
clared that  Great  Britain  holds  aloof  from  the  Euro- 
pean situation,  and  continues  to  play  her  century- 
old  political  game  of  maintaining  a  balance  of 
power. 

France  and  England  clash  in  regard  to  Poland. 
They  are  for  the  moment  in  sharp  controversy  over 
the  Near  East.  Both  have  endeavored  to  gain  spe- 
cial privileges  there,  and  neither  has  put  all  its  diplo- 
matic cards  upon  the  table.  France  has  negotiated 
a  separate  peace  with  the  Angora  Government  in  Asia 
Minor.  That  arrangement  was  practically  concluded 
without  the  knowledge  of  England,  and  resulted  in 
shocked  surprise.  The  subject  is  too  complicated  to 
enter  into  here,  but  some  of  the  features  of  the  Treaty 
which  was  signed  between  France  and  the  Kemalist 
Government  are  interesting,  because  they  indicate 
the  extent  of  France's  desire  to  insert  commercial  pro- 
visions in  a  Treaty  of  Peace. 

The  Treaty  conceded  the  port  of  Mersina,  as  well 
as  the  use  of  the  Bagdad  Railway.  It  gave  France 
economic  preference  in  Cilicia.  All  concessions  for 


FRANCE  137 

port  works,  water  works,  railways  and  other  impor- 
tant enterprises  are  reserved  for  French  capital. 
France  is  given  an  exclusive  right  to  exploit  certain 
petroleum  fields.  In  return,  the  French  Government 
agrees  to  facilitate  the  launching  of  Kemalist  loans 
through  French  banks,  and  binds  itself  to  aid  the 
Turks  to  recover  all  territory  where  a  majority  of  the 
population  is  Mussulman. 

There  are  many  other  examples  of  a  lack  of  frank- 
ness between  France  and  England  concerning  their 
commercial  ambitions.  Bulgaria  is  under  the  tutelage 
of  an  allied  commission,  but  the  various  members  do 
not  work  in  harmony.  French  and  Belgian  capitalists, 
with  the  aid  of  the  French  Government  representa- 
tives at  Sofia,  almost  concluded  arrangements  for  a 
very  large  loan  for  railroad  construction.  A  study 
of  the  terms  of  the  loan  would  open  the  eyes  of  any 
American  bond  house  to  undreamed-of  possibilities 
in  contracts. 

When  the  fact  reached  the  attention  of  the  British 
representatives  there  was  a  great  row,  not  because 
the  terms  were  harsh,  but  because  arrangements  had 
been  so  nearly  completed  without  England  being  in- 
formed. The  negotiations  were  summarily  halted. 
Subsequently  English  capital  offered  a  loan  of  twice 
the  amount,  but  also  on  terms  that  included  many  ar- 
rangements besides  the  mere  contract  to  lend  money. 

However  vigorously  France  may  deny  imperialistic 


i38  WHAT  NEXT  IN  EUROPE? 

tendencies,  there  can  be  no  doubt  that  with  her  in- 
creased colonial  possessions  she  has  become  a  great 
Empire.  France  is  only  second  to  England,  both  in 
area  and  population  of  overseas  possessions.  In  area 
she  controls  over  ten  million  kilometers,  as  compared 
with  England's  thirty-five  million.  Politically  she 
dominates  the  destinies  of  well  over  fifty  million  peo- 
ple in  her  colonies.  Her  colonies  are  scattered  over 
the  world,  and  are  in  two  great  groups,  Africa  and 
Asia.  In  North  Africa  are  the  colonies  of  Algeria, 
Tunis  and  Morocco  with  twelve  million  people.  In 
West  Africa  there  is  Senegal,  Mauretania,  French 
Sudan,  Guinea,  the  Ivory  Coast,  Dahomey  and  Zinder, 
and  in  addition  Togo,  over  which  France  has  a  man- 
date. In  this  group  is  a  population  of  over  twelve 
and  a  half  millions.  In  Equatorial  Africa  she  has 
Gabon,  the  Middle  Congo,  Onbanghi-chari  and  Chad, 
to  which  may  be  added  the  Cameroons,  over  which 
France  also  has  a  mandate.  This  group  has  a  popu- 
lation of  eight  millions.  Then  there  is  the  island  of 
Madagascar  with  a  population  of  three  and  a  half 
millions. 

The  Asiatic  group  includes  Indo-China  with  a  popu- 
lation of  seventeen  and  a  half  millions. 

Besides  these  groups  there  are  detached  possessions. 
In  Africa,  the  Somali  Coast  and  Reunion.  In  Asia, 
the  French  settlements  in  British  India.  In  the  West 
Indies,  St.  Pierre,  Martinique,  Guadeloupe  and  Guyala. 


FRANCE  139 

In  Oceania  there  is  New  Caledonia,  Tahiti  and  other 
settlements. 

France  has  ambitious  plans  for  the  economic  devel- 
opment of  these  colonies,  and  high  hopes  that  they 
will  prove  of  value  in  helping  her  solve  her  commer- 
cial problems.  Unfortunately  the  testimony  which 
I  have  heard  from  unprejudiced  travelers  in  these  far- 
away but  vast  colonial  territories  does  not  pay  glow- 
ing tribute  to  French  administration.  She  will  be 
financially  handicapped  also  in  carrying  out  her  plans 
for  the  economic  development  of  her  colonies. 

She  would  like  to  build  many  railroads,  to  encour- 
age agricultural  development,  and  economically  stim- 
ulate her  colonies  in  other  ways  to  add  to  the  French 
national  income.  But  these  projects  present  many 
difficulties.  The  colonies  will  be  the  home  of  many  a 
deferred  hope. 

Discussion  of  national  finances  always  occasions 
stormy  sessions  in  the  French  Chamber,  and  brings 
out  more  criticism  from  her  own  people  than  ever 
come  from  the  foreign  friends  of  France.  There  is 
plainer  speaking  there,  even  by  members  of  the  gov- 
ernment, than  is  to  be  found  in  any  of  the  elaborate 
presentations  of  government  finances. 

M.  Bokanowski,  general  reporter  on  budgets,  said 
recently:  "If  further  acts  of  weakness  imperil  the 
recovery  of  the  debt  due  France,  and  if  expenditures 
recoverable  from  Germany  are  not  covered,  the  fiction 


140  WHAT  NEXT  IN  EUROPE? 

of  a  special  budget  cannot  be  indefinitely  kept  up,  and 
all  chance  of  balancing  the  budget  will  be  destroyed. 
It  is  for  the  French  Government  to  avert  the  disas- 
trous consequences  of  this  iniquity.  It  is  the  duty  of 
the  finance  commission  to  point  out  its  financial  effects. 
This  will  afford  France  in  her  dealings  both  with 
Germany  and  her  own  Allies  new  reasons,  were  any 
required,  for  emphatically  refusing  in  future  all  com- 
promises of  a  nature  to  imperil  her  rights,  already  con- 
siderably diminished." 

It  was  pointed  out  that  the  execution  of  the  Treaty 
of  Peace  depends  upon  the  maintenance  of  France's 
military  power,  and  that  no  economy  in  national  de- 
fense is  possible.  She  demands  both  the  full  amount 
of  reparations  due  her  and  a  full  guarantee  of  her 
future  safety. 

Recent  budget  debates  brought  out  the  fact  that  in 
spite  of  a  reduction  of  forty-two  thousand  in  the  num- 
ber of  civil  servants,  there  are  still  one  hundred  and 
forty-seven  thousand  more  than  in  1914.  In  that  con- 
nection it  was  wisely  declared  that  the  Government 
must  learn  to  resist  appeals  and  lamentations,  however 
eloquent.  It  has  a  responsibility  toward  the  nation 
at  large  in  this  matter,  since  the  reduction  of  the 
number  of  civil  servants  is  not  only  a  matter  of  re- 
lieving state  budgets,  but  of  increasing  national  in- 
dustry by  restoring  to  it  elements  of  production. 

France  feels  that  in  America  we  are  neglectful  of 


FRANCE  141 

our  international  duties,  that  we  ought  to  form  an 
alliance  with  England  and  guarantee  her  future  pro- 
tection. She  believes  that  we  ought  to  release  her  war 
indebtedness  to  the  United  States,  and  that  we  should 
take  over  some  of  her  indemnity  claims  against  Ger- 
many, and  in  return  provide  her  with  fresh  capital. 
There  seems  little  probability  that  the  United  States 
will  agree  to  any  one  of  those  suggestions,  nor  is 
England's  foreign  policy  likely  to  conform  to  French 
desire. 

It  seems  almost  impossible  for  Frenchmen  to  look 
at  Europe  as  a  whole,  to  comprehend  that  the  welfare 
of  France  is  related  to  the  general  welfare  of  Europe. 
In  discussing  general  European  conditions  with 
Frenchmen,  in  proposing  to  them  any  comprehensive 
program  for  general  European  rehabilitation,  their 
point  of  view  is  almost  always  indicated  by  their 
declaring : 

"But,  first  I  am  a  Frenchman." 

In  that  sentence,  and  the  point  of  view  it  connotes, 
is  an  indication  of  the  attitude  of  mind  of  a  great 
part  of  Europe  in  fact.  There  is  rarely  any  recogni- 
tion of  the  unity  of  the  economic  life  of  Europe.  In 
considering  the  rehabilitation  of  Europe  the  problem 
is  rarely  viewed  objectively.  In  France  one  looks 
solely  from  the  point  of  view  of  being,  first,  a  French- 
man. The  German  is,  first,  a  German.  The  Belgian 
is,  first,  a  Belgian.  Unfortunately  this  nationalistic 


H2  WHAT  NEXT  IN  EUROPE? 

point  of  view  is  not  only  usually  first,  but  is  generally 
last  also,  and  forms  the  only  point  of  view  from 
which  comprehensive  projects  for  general  welfare 
are  considered. 

We  must  all  appreciate  the  heroism  which  France 
displayed  in  peace  as  well  as  in  war.  But  in  spite  of 
our  admiration  for  what  she  has  accomplished,  and 
our  sympathy  for  the  situation  in  which  she  is  placed, 
it  must  be  admitted  that  France  still  has  before  her 
a  gigantic  task.  The  future  is  still  in  doubt. 


CHAPTER  IX 
ITALY 

ITALY  has  shown  greater  courage,  has  been  misled 
by  fewer  illusions  and  has  made  more  substantial 
progress,  considering  her  condition  immediately  after 
the  war,  than  any  other  of  the  belligerent  Continental 
nations.  Such  a  conclusion  would  shock  most  French- 
men and  many  Englishmen.  It  seems  to  me  to  be 
one  of  the  most  popular  national  pastimes  in  France 
and  England  to  deprecate  the  actions  of  Italy.  An 
opinion  of  Italy  formed  on  French  or  English  testi- 
mony would  be  misleading. 

I  am  quite  ready  to  admit  that  Italy  is  in  a  desper- 
ate situation.  A  reassuring  feature,  however,  is  that 
her  statesmen  clearly  recognize  it,  and  are  not  deceiv- 
ing themselves  or  their  constituents  with  solacing 
dreams.  Her  outlook  to-day  is  far  more  promising 
than  it  was  a  year  ago. 

Italy  is  one  of  the  few  nations  in  Europe  that  has 
substantially  reduced  the  issue  of  paper  currency.  At 
the  beginning  of  1920  she  had  a  note  circulation  of 
19,731,000,000  lire.  She  has  cut  that  down  below 
18,000,000,000  lire,  a  decrease  of  about  ten  percent. 
That  figure  becomes  more  impressive  when  you  con- 


144  WHAT  NEXT  IN  EUROPE? 

trast  it  with  the  billions  of  fresh  paper  notes  that 
are  pouring  out  of  the  currency  printing  presses  of 
the  Central  European  countries. 

Italy  has  formulated  a  tax  program  with  the  firmest 
hand  to  be  found  on  the  Continent.  She  has  done 
more  than  that;  she  has  turned  her  program  into  an 
accomplished  fact. 

The  budget  speeches  of  nearly  every  finance  minis- 
ter in  Europe  have  one  note  in  common.  All  of  them 
explain  that  their  financial  calculations  have  been  upset 
because  government  expenditures  have  proved  to  be 
greater  than  anticipated,  and  income  has  proved  to 
be  less.  The  budget  expositions  by  the  Italian  Min- 
ister of  Finance  form  a  striking  exception  to  that 
rule.  When  Giuseppe  de  Nava,  the  Italian  Minister 
of  the  Treasury,  discussed  the  financial  situation  of 
Italy  at  the  end  of  July,  he  made  some  statements  that 
must  have  seemed  to  his  fellow  finance  ministers  in 
other  countries  little  short  of  amazing.  The  statement 
for  the  fiscal  year  just  closed  showed  a  deficit  of  four 
billion  lire  less  than  the  Government  had  estimated 
at  the  beginning  of  the  year.  Such  a  statement  is 
unique  in  European  post-war  government  finance. 

It  is  true  that  even  with  this  unanticipated  improve- 
ment there  was  still  a  shocking  deficit  of  more  than 
ten  billion  lire.  Nevertheless,  expenditures  have  been 
curbed  still  further,  and  receipts  have  run  so  far  ahead 
of  expectations  that  it  seems  reasonably  certain  that 


ITALY  i  145 

the  deficit  at  the  close  of  tfie  present  year  will  be  down 
nearly  to  four  billion  lire.  This  is  bad,  but  it  is  over 
ten  billion  lire  better  than  the  amount  the  Govern- 
ment estimated  last  winter. 

The  main  saving  in  expenditure  this  year  will  be  in 
relation  to  the  wheat  supply  administration.  Last  year 
that  accounted  for  more  than  six  billion  lire.  The 
Government  has  been  strong  enough,  aided  by  a  good 
crop,  to  put  an  end  to  the  bread  subsidy.  The  harvest 
for  1921  was  the  greatest  since  1913.  Instead  of  hav- 
ing to  import  eighty  million  bushels  of  wheat,  as  was 
done  in  1920,  this  season's  imports  should  be  consid- 
erably less  than  one-half  that  amount. 

On  the  other  hand,  the  Treasury  has  had  to  face 
some  great  increases  in  expenditure.  For  public  works 
two  hundred  million  lire  have  been  set  aside  and 
nearly  the  same  amount  will  be  expended  in  liquidation 
of  various  other  government  undertakings.  New 
housing  schemes  will  take  thirty  million  lire,  expenses 
for  Government  employees,  special  allowances  to  per- 
mit non-commissioned  officers  to  meet  the  increased 
cost  of  living,  the  provision  of  extra  police  service, 
a  program  to  improve  the  economic  conditions  of  the 
clergy,  fresh  expenditures  on  public  instruction,  and 
additional  outlays  which  the  Italian  Parliament  has 
voted  have  added  one  billion  four  hundred  million  lire 
to  the  budget.  The  estimated  deficit  of  fourteen  and 
a  quarter  billion  lire  made  a  year  ago  for  the  cur- 


146  WHAT  NEXT  IN  EUROPE? 

rent  fiscal  year  and  now  reduced  to  a  i  robable  deficit 
of  four  billion  lire  shows  that  Italy  is  moving  in  the 
right  direction,  though  she  still  has  a  long  and  difficult 
financial  road  to  travel.  To  alleviate  the  most  painful 
and  direct  consequences  of  the  war,  she  has  had  to 
provide  nearly  three  and  a  half  billion  lire  for  mili- 
tary pensions,  and  for  reconstruction  of  war-damaged 
areas  in  the  released  and  redeemed  provinces. 

It  seemed  to  me  admirable  statesmanship  when  I 
heard  Minister  de  Nava  declare  that  economy  did  not 
mean  to  his  mind  a  rigid,  sterile  and  systematic  denial 
of  all  expenditure,  but  rather  an  elimination  of  all  out- 
lays for  purposes  of  doubtful  utility.  He  did  not  in- 
clude in  this  the  lofty  objectives  for  the  future  which 
the  State  cannot  neglect,  such  as  the  various  forms  of 
public  education  and  instruction. 

In  arranging  the  Italian  budget,  the  minimum  of 
emphasis  has  been  placed  upon  expected  indemnity 
receipts.  From  the  very  first,  Italy  has  clearly  seen 
the  uncertain  character  of  these  payments.  On  the 
other  hand,  these  budget  figures  do  not  take  into  ac- 
count Italy's  foreign  indebtedness,  but  the  debts  in- 
curred, during  the  war  are  not  forgotten  in  any  dis- 
cussion of  the  future  of  Italian  finance. 

In  saying  Italy  has  successfully  handled  her  difficult 
financial  problems,  I  do  not  pretend  that  she  has  solved 
them.  It  is  satisfactory  to  find  that  her  responsible 
statesmen  are  not  making  any  attempt  to  blind  the 


ITALY  147 

eyes  of  Parliament  to  the  grave  seriousness  of  the 
Treasury's  position.  There  has  been  a  great  increase 
in  the  public  debt  of  Italy  since  the  war,  as  has  been 
the  case  with  most  of  the  European  countries.  If 
they  have  had  credit  they  have  made  new  loans.  If 
they  lacked  credit  they  printed  paper  money.  The 
total  public  debt  of  Italy,  represented  by  pre-war  debts, 
national  loans,  Treasury  Bonds,  and  debts  to  foreign 
countries  amounted  on  October  31,  1919,  to  eighty- 
four  billion  lire.  During  the  next  year  it  increased  to 
ninety-eight  billion  lire.  At  the  end  of  the  fiscal  year 
of  1921  it  had  risen  to  106,721,000,000  lire,  on  which 
the  interest  amounts  to  four  and  a  half  billion  lire. 
Comment  on  these  figures,  the  Finance  Minister  said, 
was  superfluous.  Every  one  must  understand  the  elo- 
quence of  the  warning  which  proceeds  from  them. 

Italy  has  been  able  to  meet  her  budget  deficits  with- 
out increasing  her  circulating  notes,  but  she  has  had 
to  resort  freely  to  the  only  other  method — the  float- 
ing of  new  loans.  Her  investors  have  had  sufficient 
confidence  in  the  financial  position  of  the  nation  to 
absorb  all  the  Treasury  obligations  that  it  was  neces- 
sary to  issue,  but  this  leaves  Italy  with  a  floating  debt 
of  more  than  twenty-five  billion  lire.  While  depre- 
cating the  necessity  for  fresh  loans,  her  statesmen 
have  seen  clearly  the  far  greater  danger  of  bank-note 
inflation. 

"Recourse  to  the  printing  of  bank  notes,"  the  Fi- 


i48  WHAT  NEXT  IN  EUROPE? 

nance  Minister  said,  "though  it  is  apparently  the  easiest 
way  to  balance  a  budget  deficit,  is  a  treacherous  and 
dangerous  policy."  Grasping  that  truth,  the  outstand- 
ing issue  of  bank  notes  has  been  reduced,  during  a 
period  in  which  many  other  nations  were  furiously 
adding  to  the  appalling  amounts  of  paper  money  they 
have  issued. 

I  would  be  prepared,  with  some  reserve,  it  is  true, 
to  take  an  optimistic  view  of  the  future  of  Italian 
finance  if  it  were  not  for  the  unfavorable  balance  of 
trade  which  the  difference  between  her  imports  and 
her  exports  creates.  For  many  years  prior  to  the 
war,  Italy  regularly  imported  far  more  than  she  ex- 
ported. She  had  two  extraordinarily  fruitful  sources 
of  invisible  income  with  which  to  balance  her  adverse 
foreign  trade.  Tourists  used  to  spend  a  billion  lire 
a  year  in  Italy,  when  that  meant  the  gold  equivalent 
of  a  lire  practically  at  par.  Her  emigrants  used  to 
send  home  another  billion  lire  each  year. 

To-day,  however,  the  expenditure  of  tourists  is  far 
less  than  in  pre-war  days.  The  mobility  of  Italian 
labor  which  every  year  used  to  migrate  temporarily 
into  surrounding  countries  for  seasonal  work  and 
which  flowed  in  a  great  body  across  the  Atlantic  to 
both  North  and  South  America,  has  been  seriously 
interfered  with.  The  flow  to  adjacent  countries  has 
ceased.  An  Alpine  Range  is  less  of  a  barrier  than  is 
a  shabby  Custom  House  official,  drearily  examining 


ITALY  149 

passports  for  the  endless  vises  necessary  to  permit  one 
to  cross  the  border.  Mobility  of  labor  between  Euro- 
pean nations  is  a  thing  of  the  past. 

There  are  some  other  situations  in  Italy  more  prom- 
ising than  her  financial  position.  She  has  been  vac- 
cinated with  Bolshevism  and  is  probably  immune  from 
any  early  attack  of  that  disease.  The  handling  of  the 
uprising  of  labor  which  occurred  some  months  ago 
was  restrained  and  wise.  There  had  been  unemploy- 
ment, and  a  tendency  to  reduce  wages,  considerable  real 
suffering,  and  a  hot-headed  desire  for  change.  In 
Northern  Italy  an  uprising  occurred  that  seemed  to 
be  actual  Bolshevism. 

Labor  took  possession  of  many  of  the  factories, 
turned  out  the  management,  and  took  the  control  into 
its  own  hands.  Neither  the  Government  nor  the  own- 
ers fought  the  movement.  It  would  have  been  easy 
to  have  made  the  revolution  a  bloody  one.  Instead 
of  that,  great  patience  was  displayed  and  a  wise  re- 
straint which  soon  earned  its  reward.  The  men  who 
had  taken  possession  of  the  factories  were  not  pre- 
pared for  their  new  responsibilities  and  did  not  un- 
derstand what  those  responsibilities  entailed.  They 
were  permitted  to  try  the  experiment  and  very 
promptly  reached  the  conclusion  that  it  was  unwise. 
The  factories  were  handed  back  in  a  fortnight,  none 
the  worse  for  the  tenancy  of  labor's  brief  authority. 

The  men,  however,  had  learned  a  great  deal  in  that 


150  WHAT  NEXT  IN  EUROPE? 

short  period.  They  had  learned  that  capital  was  nec- 
essary, that  raw  material  had  to  be  provided  and  that 
imported  raw  material  had  to  be  paid  for  in  foreign 
exchange.  They  discovered  that  customers  for  finished 
products  were  not  plentiful  and  that  when  they  were 
found,  they  frequently  did  not  have  the  financial  means 
to  pay  for  what  they  wanted.  Altogether  it  was  a 
very  enlightening  experience.  The  incident  was  con- 
ducted with  such  good  temper  all  round  that  when  it 
was  concluded  there  was  little  hard  feeling  on  any- 
body's part,  and  the  danger  of  a  Bolshevist  uprising, 
for  the  time  being  at  least,  had  been  removed. 

There  is  a  spirit  of  mutual  understanding  to-day 
between  capital  and  labor  in  Italy,  which  is  one  of  the 
promising  signs  in  the  European  outlook.  It  is  true 
the  industrial  situation  is  bad.  There  is  a  great  deal 
of  unemployment,  and  the  numbers  of  the  unemployed 
are  increasing.  Wages  must  be  reduced  and  that  is 
never  a  process  which  tends  to  stimulate  cordial  rela- 
tions between  employer  and  employed.  On  the  whole, 
this  difficult  situation  is  being  handled  with  great  good 
sense  by  employers  and  with  a  fine  spirit  on  the  part 
of  labor. 

If  Italy  could  obtain  raw  material  to  keep  her  fac- 
tories going,  and  find  customers  for  her  goods,  there 
might  be  something  of  an  industrial  millennium  in  that 
country.  But  these  difficulties  are  almost  insurmount- 
able. Her  manufacturers  must  import  most  of  their 


ITALY  151 

raw  material  and  all  of  their  fuel.  Her  foreign  cus- 
tomers are  normally  in  the  Near  East,  and  to-day  they 
have  little  buying  ability.  So  in  spite  of  good  inten- 
tions and  the  best  relations  between  capital  and  labor 
to  be  found  anywhere  in  Europe,  economic  conditions 
may  become  so  difficult  that  the  present  amicable  spirit 
will  be  replaced  by  the  old  hostility.  There  is  ground 
for  real  hope,  however,  in  Italy's  industrial  re- 
covery. 

It  seemed  to  me  that  there  must  be  something  back 
of  this  fine  attitude  in  industrial  affairs,  and  I  was 
induced  to  look  carefully  for  its  genesis.  In  truth, 
all  over  Europe  I  had  been  seeking  for  something  that 
would  indicate  the  birth  of  a  better  spirit,  for  it  seemed 
obvious  to  me  that  without  it  Europe  might  perish. 
The  Continent  has  been  called  the  "Dis-United  States 
of  Europe"  and  such  an  epithet  is  fitting.  If  there 
was  any  way  of  measuring  the  human  hatreds  and 
antagonisms,  the  cynical  disbelief  in  the  good  inten- 
tions of  others,  and  the  evil  effects  of  fallacious  doc- 
trines, the  total  sum  of  these  destructive  ideas  would 
be  sufficient  to  account  for  most  of  Europe's  troubles. 

But  a  search  for  signs  of  a  regeneration  of  spirit 
is  disappointing.  Nowhere  had  I  found  any  indication 
of  it  until  we  reached  Italy.  Italy  has  historically 
been  the  birthplace  of  many  spiritual  revivals  and  I 
looked  forward  with  keen  interest  to  this  growth  from 
Italian  soil.  I  believe  that  promise  is  there,  though  it 


152  WHAT  NEXT  IN  EUROPE? 

has  not  yet  grown  into  any  great  movement  and  might 
easily  be  missed  even  by  a  careful  observer. 

There  is  a  movement  which  is  making  the  writings 
of  Mazzini  the  Bible  of  a  new  spiritual  cult.  Though 
it  is  not  yet  sufficiently  consolidated  to  be  impressive, 
there  are  signs  of  it  in  so  many  quarters  that  it  seems 
to  be  significantly  spontaneous.  Italy  is  ripe  for  a 
great  moral  awakening.  I  believe  it  is  that  background 
which  has  made  possible  the  better  relations  between 
capital  and  labor.  In  any  attempt  to  weigh  the  various 
factors  that  tend  toward  anything  like  a  cure  for 
Europe's  great  sickness,  I  would  put  the  possibility 
of  this  regeneration  in  Italy  almost  at  the  head  of  the 
list.  Perhaps  this  may  sound  to  some  as  an  illusive 
and  impractical  thought.  Personally  I  have  not  had 
much  experience  in  weighing  the  practical  value  of 
spiritual  tendencies,  but  I  have  seen  enough  of  the 
awful  results  of  a  world-wide  wave  of  materialism  to 
come  to  believe  that  there  is  something  more  impor- 
tant than  commercial  statistics  to  be  reckoned  with  in 
attempting  to  gauge  the  future  of  a  nation  or  a  con- 
tinent. I  am,  therefore,  quite  prepared  to  risk  the 
shrugging  of  shoulders  by  "practical  men"  when  I  say 
that  there  is  the  germ  of  something  spiritual  in  Italy 
that  is  hopeful. 

I  met  in  Florence  a  man  who  left  me  thinking  of 
him,  after  a  few  days  of  acquaintance,  as  something 
of  a  modern  Saint  Francis.  He  had  none  of  the 


ITALY  153 

accouterment  of  that  saintly  monk,  but  I  believe  that 
he  has  a  good  deal  of  the  spirit  that  made  Saint  Francis 
live.  There  seemed  to  me  to  burn  in  this  man  the  pure 
flame  of  a  love  of  justice  and  of  humanity.  Roberto 
Assagioli  is  his  name.  A  talk  with  him  on  a  moonlit 
balcony  overlooking  the  Arno  was  one  of  the  incidents 
I  shall  best  remember  in  this  whole  European  trip.  It 
was  in  deep  contrast  to  the  bitter  comment  on  condi- 
tions and  life  which  I  have  heard  from  so  many  people 
in  other  countries.  He  seemed  to  have  a  calm  and 
serene  understanding  of  the  causes  of  the  troubles  of 
the  world,  and  a  sensible  apprehension  of  where  ma- 
terialism is  leading  the  world.  He  expressed  such  a 
cheerful  hopefulness  that  a  better  road  is  at  hand,  if 
the  world  will  but  take  it,  that  his  conversation  with 
me  was  like  a  profoundly  impressive  sermon.  If  I 
am  not  mistaken,  this  man  has  the  sort  of  human 
goodness  that  has  characterized  other  men  who  have 
initiated  great  moral  movements  which  had  small  and 
humble  beginnings.  If  I  were  asked  to  indicate  pre- 
cisely what  he  has  accomplished,  or  is  proposing  to 
accomplish,  any  statement  that  I  could  make  would 
not  be  impressive ;  nevertheless,  I  was  impressed.  His 
attitude  toward  existing  religious  movements  was  not 
antagonistic,  but  he  was  keenly  aware  of  their  failure 
to  guide  humanity  toward  a  safer  road. 

This  new  spiritual  development  of  which  I  thought 
I  could  detect  a  good  many  unrelated  expressions  in 


154  WHAT  NEXT  IN  EUROPE? 

Italy,  is  not  working  along  the  lines  of  established 
creeds.  It  seemed  to  be  an  effort  to  stimulate  toler- 
ance, esteem,  reciprocal  good-will,  and  to  revive  the 
ideal  of  brotherhood.  It  seemed  to  be  not  only  a 
refreshing  belief  in  the  spiritual  side  of  man,  but  a 
determination  to  transfer  that  spiritual  power  into 
a  living  force.  When  I  left  Italy  I  felt  that  it  might 
grow  in  intensity  until  it  lighted  the  darkness  that  is 
spreading  over  the  continent  of  Europe. 


CHAPTER  X 
AUSTRIA  AND  THE  SUCCESSION  STATES 

THE  breaking  up  of  the  Austro-Hungarian  Empire 
was  in  direct  opposition  to  the  economic  unity  of 
Europe  and  was  conceived  in  absolute  disregard  of 
economic  principles.  The  Austro-Hungarian  Empire 
embraced  fifty-two  million  people.  There  had  been 
barriers  of  racial  distinctions;  there  was  government 
inefficiency  and  the  political  suppression  of  minori- 
ties. Nevertheless,  an  economic  federation  had  been 
achieved  between  the  various  parts  of  the  Empire 
which  had  resulted  in  great  material  progress. 

Americans  do  not  generally  appreciate  the  advance 
there  had  been  in  the  old  Empire ;  they  are  apt  to  think 
of  Germany  as  offering  the  main  illustration  of  indus- 
trial development.  It  is  a  fact,  however,  that  in  the 
ten  years  before  the  war,  Austrian  industries  had  in- 
creased in  exactly  the  same  proportion  as  the  indus- 
tries of  Germany.  The  freedom  of  commercial  inter- 
course between  fifty-two  million  people  made  this  de- 
velopment possible,  and  was  indeed  the  foundation 
for  it. 

Perhaps  not  one  in  fifty  American  travelers  in 
Europe  before  the  war  was  really  familiar  with  the 

iS5 


156  WHAT  NEXT  IN  EUROPE? 

Hapsburg  Empire.  Few  Americans  visited  Vienna 
compared  with  the  number  who  went  to  London  and 
Paris.  Vienna  was  the  seat  of  government,  and  of 
financial  power.  It  was  at  the  crossroads  of  com- 
merce, and  it  carried  on  a  great  commercial  business. 
It  was  Eastern  Europe's  pleasure  garden. 

The  center  of  the  great  industrial  development  of 
the  Empire,  however,  was  to  be  found  elsewhere.  In 
the  main  it  was  in  the  territory  which  is  now  included 
in  Czecho-Slovakia.  That  country  now  possesses 
seventy-two  percent  of  the  industries  of  the  old  Em- 
pire. There  was,  however,  extensive  industrial  devel- 
opment in  Hungary  also,  not  only  in  Budapest,  which 
had  become  a  splendid  modern  city,  but  in  other  dis- 
tricts of  the  old  Hungarian  kingdom. 

Austro-Hungary  was  largely  self-supporting,  and  it 
was  economically  progressive.  Its  industries  had  been 
developed  with  great  technical  expertness.  There  was 
much  to  criticize  in  the  political  administration,  al- 
though it  should  not  be  overlooked  that  the  political 
problems  arising  in  a  state  composed  of  so  many 
antagonistic  races  were  extremely  trying.  The  gov- 
ernment ruled  by  division,  rather  than  by  creating 
political  unity.  Antagonistic  political  and  racial  forces 
were  balanced  one  against  another,  and  always  with 
the  object  of  maintaining  the  political  supremacy  of 
the  Hapsburg  regime  and  the  Viennese  bureaucracy. 
Hungary  was  never  closely  knit  politically  to  Aus- 


AUSTRIA  AND  THE  SUCCESSION  STATES     15? 

tria.  The  antagonism  of  the  Czechs  toward  the  Ger- 
mans seemed  impossible  to  harmonize  and  the  Slovenes 
were  another  antagonistic  racial  block. 

The  Treaty  of  St.  Germaine  was  a  combination  of 
punitive  measures  against  the  old  ruling  political 
forces,  and  an  effort  to  give  suppressed  minorities  a 
degree  of  political  independence.  It  was  completely 
blind  to  the  economic  consequences  that  would  follow 
the  dissolution  of  so  great  an  Empire  without  any 
attempt  to  maintain  some  unity  in  the  economic  rela- 
tions of  the  new  political  units. 

The  result  has  been  one  of  the  most  disastrous  chap- 
ters of  the  Peace.  The  Hapsburg  regime  has  been 
adequately  punished  for  its  selfishness  and  unwisdom. 
The  old  aristocracy,  which  had  little  to  recommend  it 
in  a  modern  state,  has  been  destroyed.  In  this  pun- 
ishment and  destruction,  however,  there  was  involved 
the  wrecking  of  a  highly  organized,  inter-dependent 
economic  structure.  It  is  one  of  the  great  economic 
tragedies  of  history. 

The  carving  up  of  Austria  itself  is  now  a  story 
almost  too  widely  understood  to  bear  repeating.  A 
state  was  created  with  only  a  little  more  than  six  mil- 
lion people,  and  with  nearly  one-third  of  that  popu- 
lation centered  in  one  city.  The  territory  was  largely 
Alpine,  and  in  anything  like  its  present  state  of  agri- 
cultural development  was  incapable  of  feeding  more 
than  the  two  million  people  who  were  engaged  in  agri- 


158  WHAT  NEXT  IN  EUROPE? 

culture.  Considerably  more  than  two-thirds  of  the 
people  have  really  had  to  be  fed  by  imported  food. 

The  new  republic  was  left  with  only  about  one  per- 
cent of  the  coal  deposits  of  the  whole  Empire,  and 
its  fuel  problem  was  as  acute  as  its  food  requirements. 
It  was  surrounded  by  hostile  governments.  These  gov- 
ernments were  not  only  hostile,  but  they  were  them- 
selves in  extreme  economic  difficulties,  and  adopted  eco- 
nomic policies  which  were  wholly  and  often  quite 
blindly  selfish,  and  which  were  as  harmful  to  them 
as  they  were  embarrassing  to  their  neighbors.  As 
I  have  pointed  out  before,  the  whole  scheme  of  trans- 
portation was  paralyzed  by  the  new  political  bound- 
aries. These  frontiers  became  commercial  Chinese 
walls.  If  cars  moved  from  one  state  to  another,  there 
was  no  assurance  of  their  return,  and  consequently 
they  stopped  at  the  border.  All  the  governments 
surrounding  Austria  prohibited  the  export  of  food  be- 
cause it  was  not  plentiful  in  their  own  countries  and 
was  invariably  badly  distributed. 

A  highly  individualistic  economic  policy  became  the 
rule  in  each  country.  Supreme  sovereignty  in  the 
realm  of  higher  international  politics  has  many  safety 
valves,  but  supreme  sovereignty  in  the  realm  of  eco- 
nomics, when  it  amounts  to  supreme  national  selfish- 
ness, is  followed  by  quick  and  serious  reactions.  These 
reactions  are  paralyzing  to  the  exchange  of  commodi- 
ties. They  have  paralyzed  the  economic  life  of  the 


AUSTRIA  AND  THE  SUCCESSION  STATES     159 

whole  Austrian  Empire,  and  the  financial  deterioration 
that  followed  in  its  train  seriously  threatens  the  entire 
economic  structure  which  makes  the  existence  of  great 
communities  possible. 

The  situation  in  Austria  immediately  became  more 
desperate  than  in  any  of  the  other  newly  created  states. 
The  people  faced  starvation  and  actually  died  from 
it  in  considerable  numbers.  The  dislocation  of  Vien- 
na's economic  relation  to  the  old  Empire  was  complete. 
It  is  as  if  the  city  of  Washington,  for  example,  had 
been  suddenly  left  in  the  center  of  a  territory  that  was 
capable  of  producing  for  the  time  being  only  food 
enough  for  a  quarter  or  less  of  its  inhabitants.  The 
comparison  is  not  at  all  an  adequate  one,  for  Wash- 
ington is  a  far  smaller  city  than  Vienna,  and  its  popu- 
lation is  made  up  from  people  who  have  come  from 
all  over  America,  and  who  could  return  in  great  num- 
bers to  their  old  environment. 

The  situation  in  Vienna  was  quite  the  opposite.  It 
was  difficult  for  the  Viennese  to  go  to  another  city. 
And  in  addition  the  vast  numbers  of  government  offi- 
cials who  had  been  scattered  over  the  whole  Empire 
were  crowded  back  into  Vienna  and  had  to  be  pro- 
vided for  in  some  way  by  the  government. 

From  the  very  beginning  the  imperative  need  for 
food  which  had  to  be  purchased  in  terms  of  foreign 
exchange  began  to  create  a  huge  deficit  in  the  national 
budget.  Every  imaginable  scheme  was  tried  for  in- 


i6o  WHAT  NEXT  IN  EUROPE? 

creasing  income  from  taxation.  There  is  a  multiplicity 
of  taxes  in  Austria  such  as  may  be  found  in  no  other 
European  country.  But  the  receipts  from  taxes  did 
not  balance  the  budget  by  many  billions.  The  old  story 
with  which  we  are  by  this  time  familiar  was  repeated 
and  paper  money  was  poured  out  to  fill  the  gap  be- 
tween government  income  and  expenses.  This  deterio- 
rated the  value  of  the  money  to  a  degree  that  was 
exceeded  only  in  Russia  and  Poland,  and  resulted  in 
the  complete  financial  ruin  of  the  whole  class  of  people 
who  had  lived  on  fixed  incomes. 

The  disorganization  of  economic  life  which  then 
followed  the  almost  unexampled  depreciation  of  cur- 
rency and  the  confiscatory  grip  of  the  tax  gatherer 
has  been  complete.  Recognizing  the  inevitable  course 
that  government  finances  were  taking,  every  one  with 
foresight  converted  what  they  could  into  liquid  capital, 
and  under  the  pressure  of  self-preservation  exported 
that  capital  from  the  country.  The  banks  led  this 
procession,  because  they  had  greater  facilities  and  a 
quicker  apprehension  of  disaster.  The  flow  of  capital 
from  Austria  has  been  urged  on  by  the  natural  panic 
which  arose  in  the  mind  of  every  person  who  saw  the 
value  of  the  crown  sinking  with  great  rapidity. 

The  successful  conduct  of  business  became  impos- 
sible. Everything  was  determined  by  foreign  ex- 
change quotations.  Fortunes  were  made  in  specula- 
tion. Businesses  appeared  to  make  large  earnings, 


AUSTRIA  AND  THE  SUCCESSION  STATES     161 

but  while  doing  that  the  value  of  the  capital  employed 
deteriorated  so  rapidly  that  an  appearance  of  pros- 
perity only  temporarily  covered  complete  financial  ruin. 
The  usual  reckless  expenditure  by  profiteers  and  specu- 
lators gave  Vienna  the  deceptive  appearance  of  luxury 
and  prodigal  waste  that  we  have  noted  elsewhere. 

While  Austria  is  in  the  most  critical  situation,  the 
other  new  States  which  have  been  constructed  from  the 
fragments  of  the  old  Empire  are  facing  problems 
almost  as  severe.  If  half  the  United  States  were  cut 
up  into  new  political  units,  and  each  of  these  units 
had  developed  extreme  nationalistic  sentiments  coupled 
with  racial  hatreds,  so  that  they  were  entirely  blind 
to  the  need  for  a  unified  economic  policy,  it  would  be 
easy  to  see  what  demoralization  would  result.  The 
fifty-two  million  people  who  composed  the  old  Haps- 
burg  Empire  are  suffering  from  such  a  blight  to-day. 

Of  the  so-called  Succession  States  Czecho-Slovakia 
is  the  richest,  and  in  many  respects  is  in  the  most  fa- 
vorable situation,  though  that  is  not  equivalent  to  say- 
ing that  the  outlook  in  Czecho-Slovakia  is  bright. 
With  the  natural  resources  and  industrial  developments 
of  old  Austria  the  Czechs  also  inherited  three  million 
Germans.  They  are  now  experiencing  some  of  the 
political  difficulties  which  they  themselves  were  promi- 
nent in  causing  in  the  old  Empire. 

The  Germans  are  resentful  and  unreasonable  from 
the  Czech  point  of  view.  But  I  must  say  that  the  per- 


1 62  WHAT  NEXT  IN  EUROPE? 

sonal  observations  I  was  able  to  make  left  me  with 
the  impression  that  the  Czechs  had  been  scrupulously 
fair  to  the  Germans  in  granting  them  educational  fa- 
cilities, and  in  other  directions  also.  The  Germans 
had  long  been  the  ruling  class,  however,  and  had  held 
themselves  intellectually  superior  to  the  Czechs.  Natu- 
rally the  new  relations  are  strained. 

If  Czecho-Slovakia  had  been  formed  in  a  period 
when  there  were  normal  conditions  in  the  surrounding 
nations,  it  would  probably  have  had  little  economic 
trouble.  The  new  state  is  exceedingly  rich  in  coal, 
in  agricultural  productive  capacity  and  in  industries. 
I  motored  many  miles  through  agricultural  districts 
and  there  are  few,  if  any,  places  in  Europe  that  show 
superior  agricultural  methods.  Nevertheless,  the  coun- 
try cannot  feed  itself,  for  half  its  population  is  indus- 
trial, and  an  important  part  of  its  agricultural  output 
is  beet  sugar,  which  can  really  be  likened  to  an  industry. 

Czecho-Slovakia  faces  the  same  difficulty  that  Eng- 
land does.  It  is  a  highly  industrialized  state  which 
must  dispose  of  its  manufactured  goods  to  pay  its  food 
bill,  and  which  for  the  time  being  lacks  customers. 
Her  natural  markets  are  in  the  Near  East,  and  the 
general  paralysis  in  the  international  exchange  of 
goods  is  severely  felt.  The  importance  of  establishing 
an  economic  federation  with  their  neighbors  is  clearly 
perceived  in  Czecho-Slovakia.  There  is  no  more  potent 
force  working  in  that  direction  than  Benes,  the  Czecho- 


AUSTRIA  AND  THE  SUCCESSION  STATES     163 

Slovakian  Minister  of  Foreign  Affairs.  He  is  not 
optimistic,  however,  of  accomplishing  much  at  an  early 
date. 

The  southern  possessions  of  the  old  Empire  were 
lopped  off,  first  by  the  return  to  Italy  of  the  provinces 
which  had  been  her  Alsace-Lorraine,  and  then  by  ces- 
sions to  Jugo-Slavia.  The  Slavs  undoubtedly  had 
great  cause  for  complaint  against  the  old  Austro- 
Hungarian  administration.  They  were  a  severely  op- 
pressed minority,  though  that  does  not  make  them 
highly  intelligent  rulers  over  the  portion  of  Austro- 
Hungary  which  they  now  control.  Compared  with 
the  Austrians,  the  Slavs  are  lacking  in  administrative 
experience,  and  speaking  broadly  of  the  whole  coun- 
try, in  education  and  in  culture.  But  they  have  many 
fine  and  sturdy  qualities,  and  an  intense  patriotism. 
From  Serbia  and  this  portion  of  the  old  Empire  the 
extensive  "Kingdom  of  the  Serbs,  Croats  and  Slo- 
venes" has  been  created.  It  is  a  vital  political  state, 
but  its  triple  title  illustrates  how  difficult  it  is  to  sink 
racial  causes  in  a  national  boundary.  Jugo-Slavia 
is  merely  the  popular  name.  Their  poets  for  the  future 
will  find  some  metrical  difficulties  when  they  under- 
take to  write  national  songs  in  which  the  official  state 
name  must  be  incorporated. 

We  would  regard  a  considerable  part  of  Jugo-Slavia 
as  a  backward  country.  That  portion  which  was  for- 
merly a  part  of  Austria  is  in  sharp  contrast  to  the 


1 64  WHAT  NEXT  IN  EUROPE? 

more  backward  parts  of  the  new  state.  A  stranger 
could  almost  place  the  limits  of  the  old  Austro-Hun- 
garian  Empire  by  noting  the  marked  difference  in 
prosperity  and  culture  wherever  he  crosses  the  old 
boundaries.  The  line  is  certainly  easy  to  discern  in 
Jugo-Slavia  or  Roumania.  In  traveling  from  Belgrade 
to  Budapest  it  is  interesting  to  observe  the  old  Hun- 
garian town  of  Subotica,  which  is  now  incorporated  in 
the  Serb-Croat-Slovene  kingdom.  It  compares  to  the 
capital,  Belgrade,  in  a  way  distinctly  unfavorable  to 
the  latter.  Its  buildings  are  finer,  and  its  whole  ap- 
pearance indicates  a  higher  cultural  development. 

The  Kingdom  of  the  Serbs,  Croats  and  Slovenes, 
as  the  very  name  implies,  is  not  made  up  of  a  homo- 
geneous people.  It  will  have  some  of  the  same  racial 
difficulties  to  cope  with  as  had  the  Hapsburg  mon- 
archy, but  the  material  from  which  the  ruling  class  at 
Belgrade  will  be  drawn  will  have  less  experience,  and 
less  education,  than  was  the  case  at  Vienna. 

Recently  oppressed  minorities  do  not  seem  to  become 
magnanimous  or  broad-minded  administrators  when 
they  become  politically  dominant.  Already  there  has 
undoubtedly  been  serious  persecution  of  Hungarians 
and  Germans.  The  great  number  of  refugees  from 
the  segregated  districts  are  a  proof  of  it.  The  new 
kingdom  is  not  a  highly  developed  industrial  state, 
and  so  it  feels  the  breakdown  of  the  old  economic  unity 
less  than  does  Austria  or  Hungary;  but  nevertheless 


AUSTRIA  AND  THE  SUCCESSION  STATES     165 

it  is  suffering  severely  from  that  economic  change. 
There  might  be  some  chance  of  economic  federation 
between  Jugo-Slavia  and  Austria,  but  there  is  less 
chance  of  it  between  Jugo-Slavia  and  Hungary,  and 
for  the  present  none  at  all  between  Jugo-Slavia  and 
Bulgaria.  The  bitterness  that  grew  out  of  the  war, 
and  from  the  ruthless  military  invasion  by  Bulgaria, 
will  take  a  long  time  to  pacify. 

I  have  spoken  elsewhere  of  the  savage  way  in  which 
the  political  boundaries  of  Hungary  were  redrawn. 
There  was  no  thought  of  economic  consequences  when 
these  frontiers  were  decided.  The  result  is  extremely 
depressing. 

I  have  been  familiar  with  Budapest  for  twenty  years. 
But  again  I  was  impressed  with  the  tremendous  mate- 
rial accomplishment  which  is  implied  in  the  creation 
of  such  a  city  as  is  Budapest,  even  in  its  present  mis- 
fortune. The  people  who  could  create  such  a  city 
have  a  vitality  that  will  have  to  be  reckoned  with  in 
the  future. 

For  the  time  being  the  economic  situation  both  of 
the  government  and  of  private  business  in  Hungary 
is  anything  but  hopeful.  One  finance  minister  after 
another  has  broken  under  the  strain  of  attempting  to 
balance  the  national  budget.  The  present  position  of 
government  finances  is  most  chaotic,  and  after  an 
heroic  attempt  to  make  the  budget  balance  the  fiscal 
year  will  result  in  a  huge  deficit.  It  promises  to  be 


1 66  WHAT  NEXT  IN  EUROPE? 

far  worse  than  even  pessimistic  political  opposition  pre- 
dicted. The  effect  is  shown  in  a  constantly  depreciat- 
ing currency,  and  all  the  terrible  train  of  events  that 
has  followed  a  similar  deterioration  in  other  countries. 
There  is  far  more  political  and  racial  antagonism  on 
the  borders  of  the  present  Hungary  than  is  the  case 
with  Austria,  and  while  Hungary  is  in  a  much  better 
economic  position  than  Austria,  her  political  situation 
is  precarious. 

The  spirit  of  the  Hungarian  is  not  broken  as  is  the 
Austrian's.  Austria  is  completely  humbled,  and  pos- 
sesses less  nationalistic  pride  than  any  other  country 
in  Europe.  Indeed,  the  decay  of  her  national  spirit  has 
gone  altogether  too  far.  There  has  been  an  almost 
complete  loss  of  self-confidence,  and  there  is  a  dispo- 
sition to  exaggerate  her  difficulties  and  underrate  her 
resources.  Austria  needs  perhaps  more  than  anything 
else  something  that  will  stimulate  her  self-respect,  re- 
vive a  spirit  of  hope,  and  give  her  some  confidence 
in  the  future.  She  has  seen  one  project  after  another 
devised  to  improve  her  situation  completely  fail  in 
execution.  She  has  been  examined  by  so  many  com- 
missions that  she  feels  like  a  charity  patient  daily  vis- 
ited by  some  new  organization  which  makes  charts  and 
compiles  statistics,  but  never  gives  her  the  help  she 
needs. 

In  Hungary  there  has  been  no  such  breakdown  of 
national  pride.    The   Hungarians  have  gone  to   the 


AUSTRIA  AND  THE  SUCCESSION  STATES     167 

other  extreme.  The  carving  up  of  the  old  kingdom 
has  united  them  as  perhaps  the  people  of  no  other 
state  in  Europe  are  united,  in  a  determination  to  cor- 
rect what  they  believe  has  been  the  grossest  of  injus- 
tices. 

The  Peace  settlements  have  not  brought  any  mate- 
rial gain  to  the  people  who  formerly  constituted  the 
Austro-Hungarian  Empire.  Some  racial  and  national 
aspirations  have  been  partially  met,  but  new  areas  in 
which  political  minorities  are  suppressed  have  been 
created.  The  economic  unity  of  the  former  Empire 
has  been  wholly  disrupted;  the  present  effect  of  that 
is  catastrophic  for  the  new  Austria,  and  great  difficul- 
ties have  been  raised  in  the  Succession  States. 

My  own  view  is  hopeful  in  regard  to  the  possi- 
bility of  giving  economic  stability  to  Austria.  Vienna 
is  in  a  position  of  great  commercial  advantage  and 
can  go  a  long  way  toward  supporting  itself  by  the 
flow  of  commerce  that  will  pass  through  the  city.  She 
is  situated  on  lines  of  water  and  rail  transportation 
which  should  permanently  make  her  a  great  center. 
The  very  disruption  of  economic  unity  in  the  old  Em- 
pire has  given  a  new  importance  to  Vienna.  It  has 
become  an  international  meeting  place.  Not  all  of 
the  direction  of  affairs  that  used  to  proceed  from  the 
capital  of  the  Empire  will  be  permanently  lost. 

The  new  Austria  is  not  so  poverty  stricken  as  some 
of  its  own  people  imagine.  There  is  as  much  industry 


1 68  WHAT  NEXT  IN  EUROPE? 

as  in  Bavaria,  and  more  productive  land  per  head 
than  in  Switzerland.  There  are  still  large  individual 
capital  resources,  although  most  of  the  movable  capi- 
tal has  been  exported.  Some  of  it  would  return  if 
a  hopeful  outlook  could  be  established,  and  the  Aus- 
trians  could  regain  confidence  in  their  own  situation. 

Nevertheless  in  Austria  are  the  elements  of  a  great 
tragedy,  and  I  doubt  if  it  has  force  enough  to  avert 
it  without  help  from  the  outside.  She  must  have  im- 
mediate aid  to  provide  food  if  the  catastrophe  is  to 
be  delayed.  Austria,  however,  cannot  continue  to  live 
on  charity.  She  needs  capital  and  economic  encour- 
agement. The  furnishing  of  capital  and  the  giving 
of  charity  doles  are  incompatible.  Business  co- 
operation cannot  be  mixed  with  charitable  contribu- 
tions. Austria  will  probably  have  to  have  some  new 
basis  for  currency,  as  the  old  currency  now  seems  hope- 
lessly depreciated.  It  would  be  possible  to  supply  that, 
and  at  the  same  time  provide  some  outside  direction 
of  her  affairs,  which  Austria  is  quite  ready  to  accept, 
and  indeed  believes  to  be  essential. 

The  United  States  with  the  aid  of  England  could 
bring  about  further  cooperation  by  the  stronger  Con- 
tinental nations,  for  they  all  see  the  danger  of  a  com- 
plete Austrian  collapse.  If  a  start  was  made  in  estab- 
lishing a  sound  currency,  it  might  be  possible  to  bring 
the  Succession  States  to  a  realization  that  some 


AUSTRIA  AND  THE  SUCCESSION  STATES     169 

measure  of  economic  federation  which  would  include 
Austria  is  essential  to  their  prosperity. 

I  have  an  impression  that  all  Central  Europe,  and 
even  the  wider  territory  in  contact  with  it,  is  poised 
between  disaster  and  the  possibility  of  rapid  economic 
recovery.  America  could  bring  into  Central  Europe 
a  clearer  sense  of  what  economic  unity  means  than  can 
come  from  any  other  quarter.  If  Central  Europe, 
and  particularly  the  old  Hapsburg  Empire,  is  left  to 
itself  the  outlook  promises  further  deterioration  that 
may  become  catastrophic.  The  interest,  cooperation 
and  help  of  the  United  States  might  go  a  long  way 
toward  averting  that  disaster,  which  I  do  not  believe 
is  necessarily  inevitable.  It  would  seem  that  our  own 
self-interest,  if  nothing  more,  should  sharply  awaken 
us  to  the  seriousness  of  the  situation,  and  should 
stimulate  our  imagination  to  the  necessity  of  judicious 
assistance. 


CHAPTER  XI 
RUSSIA  AND  THE  NEAR  EAST 

RUSSIA  was  one  of  the  few  countries  in  Europe  I 
did  not  visit.  Indeed,  it  is  just  twenty  years  since 
I  have  been  in  that  country.  A  recent  visit  by  a  gen- 
tleman bearing  my  name  has  led  to  the  impression  in 
the  minds  of  a  great  many  people  that  I  was  in  Russia 
recently,  endeavoring  to  obtain  concessions  and  estab- 
lish economic  relations.  There  is  no  foundation  what- 
ever for  that  belief,  nor  for  connecting  the  endeavors 
of  the  gentleman  to  whom  I  refer  with  any  plans  of 
my  own. 

Nevertheless,  I  have  had  considerable  experience 
with  Russian  affairs.  While  I  was  president  of  The 
National  City  Bank  there  were  important  branches  of 
that  bank  established  in  Petrograd  and  Moscow.  I 
was  an  interested  observer  of  the  way  in  which  the 
Bolshevik  Government  took  over  those  institutions. 
But  until  my  recent  trip,  I  have  never  had  an  oppor- 
tunity to  talk  with  representatives  of  the  Russian 
Soviet  Government.  From  them  I  was  able  to  add 
to  my  information  regarding  the  official  Soviet  atti- 
tude. I  discussed  Russia  with  perhaps  half  the  foreign 
ministers  of  Europe.  Some  of  the  great  German  in- 

170 


RUSSIA  AND  THE  NEAR  EAST  171 

dustrialists  gave  me  a  more  detailed  impression  of 
present  conditions.  They  believed  that  by  uniting 
American  credit  with  German  industrial  capacity  it 
would  be  possible  to  begin  trading  with  Russia  on  a 
large  scale. 

While  any  observations  that  I  can  make  about  Rus- 
sia are,  therefore,  second  hand,  they  seem  to  me  to 
rest  on  a  fairly  good  basis  of  fact.  Let  me  begin  by 
stating  that  the  Soviet  Government  is  more  firmly 
seated  than  we  have  generally  imagined  in  America. 
This  is  not  so  much  due  to  the  political  strength  of 
that  Government  as  it  is  to  the  extreme  weakness  of 
the  forces  that  oppose  it.  Well-informed  people  believe 
that  there  is  no  political  group  in  Russia  which  would 
prove  equal  to  administering  a  new  government  if  the 
Soviet  Government  were  to  collapse.  It  is  safe  to  pre- 
dict that  its  fall  would  lead  to  a  long  period  of  anarchy. 

There  has  been  a  profound  change  in  the  economic 
aims  of  the  Russian  Government.  As  one  of  their 
representatives  remarked:  "We  have  not  abandoned 
the  theory  of  communism,  but  we  have  come  to  the 
conclusion  that  we  tried  to  inaugurate  a  communistic 
society  a  few  centuries  too  soon." 

In  practice,  at  least,  the  principles  of  communism 
are  undoubtedly  being  abandoned. 

In  Russia  at  the  present  time  there  is  a  considerable 
amount  of  freedom  of  trade.  Stores  are  being  opened 
and  it  has  become  legally  possible  to  buy  and  sell. 


172  WHAT  NEXT  IN  EUROPE? 

Even  agricultural  lands  can  be  openly  sold.  Houses 
and  city  buildings  may  now  be  purchased,  although  the 
land  under  them  still  remains  the  property  of  the  Gov- 
ernment. Men  are  again  working  for  wages.  The 
peasants  have  been  given  assurance  that  their  produce 
will  not  be  confiscated  in  the  future.  Instead,  they 
will  only  have  to  pay  a  tax  equal  to  ten  percent  of 
everything  they  raise.  The  remainder  of  their  crop 
they  will  be  free  to  sell  in  a  capitalistic  market. 

All  imports  and  exports  are  still  controlled  by  the 
Soviet.  The  Government  has  put  banks  into  operation 
again  and  is,  in  a  sense,  performing  a  capitalistic  role. 

Nearly  everything  I  heard  on  the  subject  indicated 
that  Bolshevism,  as  it  has  been  represented  by  many 
observers  and  by  the  press  in  the  past,  is  not  now  as 
black  as  it  has  been  painted.  On  the  other  hand,  the 
alterations  that  have  occurred  in  Soviet  aims  and  prac- 
tice cannot  be  taken  as  indicative  of  a  complete  change 
of  heart.  Communistic  propaganda  is  still  being  car- 
ried on  in  many  countries  with  Russian  aid.  Specific 
denials  that  this  aid  is  from  government  sources  may 
be  technically  true,  but  it  cannot  be  doubted  that  the 
activities  of  propagandists  of  Bolshevism  are  under- 
taken with  Government  connivance,  at  least.  I  was 
told  on  high  authority  that  there  are  forty  newspapers 
in  Italy  controlled  and  directed  from  Russian  Bol- 
shevik sources.  I  believe  there  is  still  a  great  deal  of 
Bolshevik  propaganda  going  on. 


RUSSIA  AND  THE  NEAR  EAST  173 

In  Constantinople  I  had  extremely  interesting  con- 
versations with  the  Near  Eastern  representative  of 
the  Bolshevik  Government.  He  bears  a  degree  of  Doc- 
tor of  Laws  from  Moscow  University  and  is  a  Doctor 
of  Philosophy  as  the  result  of  his  training  in  a  German 
University. 

In  London  I  had  a  similar  opportunity  to  exchange 
views  with  M.  Krassin,  the  Soviet  commercial  repre- 
sentative to  England.  He  is  also  a  highly  intelligent 
man  and  an  experienced  industrialist  under  the  old 
regime.  I  doubt  if  he  was  ever  converted  to  com- 
munism, although  he  certainly  said  nothing  that  could 
be  quoted  as  remotely  admitting  that.  I  simply  mean 
that  he  impressed  me  as  too  sensible  a  business  man 
to  have  ever  given  his  adherence  to  the  original  prin- 
ciples of  Bolshevism. 

It  would  perhaps  not  be  fair  for  me  to  quote  my 
conversations  with  these*  official  representatives  of  the 
Soviet  Government.  I  met  other  men,  however,  who 
were  not  officially  connected  with  the  Government 
though  they  adhered  to  the  Soviet  system,  as  well  as 
men  like  General  Wrangel  who  were  violently  opposed 
to  it.  I  will  try  to  reproduce  the  substance  of  one  con- 
versation with  a  Bolshevist  adherent  which  seemed  to 
me  enlightening. 

The  conversation  started  with  the  statement  that 
Russians,  and  the  Russian  Government,  cannot  under- 
stand the  basis  for  the  American  policy  of  noninter- 


174  WHAT  NEXT  IN  EUROPE? 

course.  Whatever  differences  of  opinion  there  might 
be  as  to  the  wisdom  of  the  communistic  experiment, 
the  present  Government  of  Russia  is  an  accomplished 
fact,  and  our  attitude  seemed  inexplicable. 

I  said  that  I  would  try  to  give  what  I  believed  to 
be  a  common  opinion  in  America.  While  I  did  not 
wholly  agree  with  this  attitude  myself,  I  believed  that 
it  was  a  fair  statement  of  what  a  large  section  of  our 
public  thought  and  that  it  was  responsible  for  the  pol- 
icy of  commercial  nonintercourse.  There  was  a  gen- 
eral belief,  I  told  him,  that  the  Russian  Empire  had 
been  stolen  by  a  handful  of  men.  At  their  head  was 
a  man  of  great  ability,  high  motives  and  fanatical 
adherence  to  an  impossible  economic  theory.  There 
were  perhaps  others  associated  with  him  in  the  Gov- 
ernment who  had  high  ideals,  but  in  the  main  the  Gov- 
ernment was  composed  of  a  group  of  men  who  were 
the  social  offscouring  of  the  world.  Men  who  were 
utterly  without  character  or  good  purpose  had  been 
placed  in  positions  of  great  power. 

The  American  idea  in  that  the  aim  of  these  men  had 
been  power;  its  achievement  had  maddened  them. 
They  had  conducted  a  revolution  by  the  most  atro- 
cious methods  ever  known  in  history.  They  had 
assassinated  practically  a  whole  class.  They  had  not 
offered  protection,  justice  or  equity  to  anyone.  They 
had  inaugurated  a  mad  economic  program,  not  be- 
cause they  believed  that  it  was  workable,  but  because 


RUSSIA  AND  THE  NEAR  EAST  175 

it  offered  opportunity  for  revolution  and  loot  wher- 
ever it  could  be  extended.  They  had  debauched  the 
whole  economic  life  of  an  Empire,  broken  down  the 
machinery  of  commerce,  and  conducted  one  hundred 
and  fifty  million  people  into  a  situation  of  barbarous 
want. 

They  had  used  every  means  and  the  greatest 
ingenuity  to  breed  revolution  throughout  the  world. 
They  had  sent  agents  to  propagate  disorder  every- 
where and  had  proven  themselves  the  enemy  of  organ- 
ized society.  Their  experiment  as  it  had  been  con- 
ducted had  nothing  in  it  that  promised  good  and  a 
great  deal  that  was  evil. 

A  curtain  had  been  drawn  over  the  whole  scene  of 
this  mad  experiment.  There  was  no  freedom  of  in- 
gress, and  the  few  people  who  were  permitted  interior 
glimpses  of  Russia  were  not  permitted  to  see  the  true 
state  of  affairs.  Promises  made  by  the  Government 
had  not  been  kept  and  the  situation  wholly  lacked  the 
foundation  of  mutual  confidence  which  was  necessary 
for  dealings  with  other  nations.  There  was  no  belief 
in  the  economic  sanity  and  moral  trustworthiness  of 
the  Government.  It  was  upon  views  of  this  nature 
that  the  policy  of  nonintercourse  rested. 

The  reply  to  the  reasons  I  had  given  for  our  atti- 
tude was  ingenious  if  it  was  not  wholly  convincing. 
Revolutions  have  never  been  conducted  with  kid 
gloves,  I  was  told.  It  is  inherent  in  a  revolution  which 


176  WHAT  NEXT  IN  EUROPE? 

fundamentally  overturns  both  the  political  and  social 
order  that  there  must  for  a  time  be  cruelties  and  in- 
justices. He  admitted  that  there  was  such  a  period 
during  the  earlier  months  of  the  installation  of  the 
Bolshevik  Government. 

The  new  Government  had  found  itself  beset  by  great 
dangers  from  within  and  without.  Those  who  would 
overthrow  it  at  home  had  to  be  dealt  with  summarily. 
In  addition  to  civil  war  it  faced  war  upon  every  bor- 
der. The  attacks  of  its  neighbors  were  aided  by 
nations  that  were  nominally  at  peace  with  Russia  but 
who  were  allying  themselves  with  the  nations  that  were 
actually  at  war.  All  commercial  relations  with  the  out- 
side world  were  cut  off.  The  Government  was  fight- 
ing for  its  life,  and  just  as  the  great  powers  when 
they  were  fighting  for  their  lives  used  poison  gas,  so 
the  Soviet  used  the  poison  gas  of  propaganda.  They 
regarded  it  as  a  military  weapon  and  struck  with  it 
at  the  most  vulnerable  points. 

The  charge  that  the  Government  had  been  stolen 
and  that  the  men  who  were  conducting  it  did  not  rep- 
resent the  will  of  the  governed  was  declared  to  be 
false.  Russia  is  almost  wholly  a  land  of  peasants  and 
the  one  great  demand  of  the  peasant  was  for  land 
ownership.  His  land  hunger  had  been  satisfied.  It 
was  a  complete  misapprehension  of  the  situation  to 
believe  the  peasant  could  be  rallied  to  the  support  of 
a  reactionary  movement  which  might  take  away  from 


RUSSIA  AND  THE  NEAR  EAST  177 

him  the  land  titles  he  had  acquired  under  the  Soviet 
Government.  The  charge  that  had  been  made  that  it 
was  a  government  of  renegade  Jews  was  likewise  false. 
The  government  is  in  the  hands  of  eighteen  Com- 
missars and  only  one  of  them  is  a  Jew.  There  were 
Jews  in  the  administrative  machinery,  but  they  were 
there  because  they  were  the  ablest  persons  who  could 
be  found  for  administrative  tasks. 

The  Government,  he  said,  was  the  most  directly  re- 
sponsive to  the  people  of  any  government  in  Europe, 
because  it  has  to  renew  its  touch  with  the  people  by 
elections  that  occur  every  six  months.  Economic  con- 
ditions had  become  extremely  severe.  Mistakes  had 
been  made  and  one  of  the  greatest  of  them  proved 
to  be  the  requisitioning  of  grain  from  peasants.  This 
resulted  in  a  decrease  in  production  and  when  there 
were  added  great  difficulties  of  transportation,  the  con- 
ditions of  life  in  the  cities  became  almost  intolerable. 

Not  even  among  representatives  of  the  Soviet  Gov- 
ernment did  I  find  any  optimism  in  regard  to  an  early 
return  of  economic  prosperity  in  Russia.  The  eco- 
nomic degeneration  was  frankly  admitted,  although 
the  causes  for  it  were  attributed  to  the  blockade  estab- 
lished by  other  nations,  rather  than  to  the  impracti- 
cability of  communism.  They  were  willing,  however, 
to  admit  that  they  had  been  disappointed  in  the  mate- 
rial results  of  the  application  of  Communism. 

No  one  denied  that  production  had  been  greatly 


1 78  WHAT  NEXT  IN  EUROPE? 

reduced,  that  the  transportation  system  had  largely 
broken  down,  that  there  was  actual  starvation  in  a 
wide  area  and  that  the  general  economic  position  was 
deplorable.  My  own  conclusion  is  that  there  is  noth- 
ing in  the  present  situation  which  promises  an  early 
restoration  of  Russia  to  a  state  which  will  compare 
with  its  former  importance  in  international  commerce. 

This  has  a  significant  bearing  upon  the  whole  Euro- 
pean problem.  Taken  by  itself,  the  economic  collapse 
of  Russia  would  have  created  a  crisis  in  European 
affairs  had  there  been  nothing  else  to  contribute  to 
it.  Russia  was  both  a  great  granary  from  which  food 
supplies  could  be  drawn  and  a  customer  of  great  im- 
portance for  manufactured  goods.  Even  the  most 
optimistic  cannot  foresee  the  time  when  Russia  will 
again  become  a  large  surplus  producer  of  food,  nor 
an  important  customer  for  European  manufacturers. 
Her  need  for  manufactured  goods  is  extreme.  The 
years  of  deprivation  have  produced  an  enormous  vac- 
uum. But  goods  cannot  be  drawn  into  Russia  on  a 
great  scale  unless  they  are  counter-balanced  by  exports. 
And  that  on  any  normal  scale  will  be  a  matter  of  many 
years. 

Restoration  of  her  position  as  an  important  cus- 
tomer could  be  greatly  hastened  if  she  were  granted 
credit,  for  it  would  immediately  increase  her  produc- 
tive capacity.  But  this  will  be  impossible,  since  the 
financial  world  is  not  convinced  of  the  stability  of 


RUSSIA  AND  THE  NEAR  EAST  179 

the  Soviet  Government,  nor  is  it  convinced  that  it 
should  contribute  to  its  permanence. 

Instead  of  deteriorating,  the  Soviet  Government  has 
greatly  strengthened  its  position.  It  has  been  success- 
ful in  putting  down  civil  war  and  has  established  ap- 
proximate peace  on  its  borders.  Its  economic  struc- 
ture is  in  the  utmost  disorder,  but  the  abandonment  of 
communistic  doctrines  promises  a  gradual  economic 
restoration. 

There  can  never  be  a  free  flow  of  capital  into  Rus- 
sia until  there  is  opportunity  for  unrestricted  observa- 
tion. The  confidence  of  investors  will  not  be  gained 
until  endless  thousands  of  eyewitnesses  have  been  able 
to  testify  that  conditions  have  improved.  It  will  be  a 
long  time  before  the  capitalistic  world  believes  in  the 
good  faith  of  the  government.  The  Government's  first 
thought  is  self-preservation  and  if  its  borders  were 
opened  to  permit  free  intermingling  of  foreigners  and 
Russians,  its  foundations  might  be  undermined,  the 
Government  believes. 

Germany  is  the  natural  complement  of  Russia. 
Germany  commercially  understands  Russia  better  than 
does  any  other  nation.  There  are  several  hundred 
thousands  of  Germans  who  speak  Russian,  and  the 
German  language  used  to  be  well  understood  in  com- 
mercial Russia.  Germany  has  the  industrial  capacity 
and  the  organizing  genius  which  Russia  lacks.  Rus- 
sia has  the  food-producing  capacity  and  illimitable 


i8o  WHAT  NEXT  IN  EUROPE? 

manpower  which  Germany,  better  than  any  other  na- 
tion, could  organize. 

There  are  almost  insuperable  obstacles  in  the  way 
of  economic  fusion  between  the  two  countries,  how- 
ever. Poland  is  one  of  those  obstacles.  Another  is 
the  fear  which  the  Allies  entertain  regarding  the  mili- 
tary potentialities  of  this  union  of  German  organiza- 
tion and  Russian  productivity,  and  they  will  certainly 
exercise  all  their  influence  to  prevent  it.  Perhaps  it 
cannot  be  avoided.  There  is  an  instability  in  the  pres- 
ent political  status  of  Middle  and  Eastern  Europe 
which  might  lead  to  kaleidoscopic  changes.  No  one 
can  predict  with  assurance  what  the  future  there  will 
bring  forth. 

Economic  pressure  in  Germany  may  produce  radi- 
calism which  would  bring  the  political  forces  in  Ger- 
many and  Russia  into  approximate  harmony.  The  in- 
stability of  Poland  as  a  buffer  state  to  prevent  eco- 
nomic fusion  between  Russia  and  Germany  must  be 
admitted.  In  Germany  there  is  no  political  belief 
more  universally  held  than  that  Poland  is  not  a  per- 
manent state.  German  diagnosis  of  foreign  politics 
has  not  been  notably  accurate,  but  there  are  obviously 
a  good  many  facts  on  which  to  base  Germany's  opinion 
of  the  future  of  Poland. 

There  is  nothing  in  the  outlook  in  South  Russia 
and  the  Near  East  which  promises  an  immediate  set- 


RUSSIA  AND  THE  NEAR  EAST  181 

tlement  of  the  economic  situation.  The  government 
officials  of  the  four  republics  that  were  formed  on  the 
eastern  borders  of  the  Black  Sea  are  now  in  exile  in 
Paris  and  the  Bolshevists  are  in  political  control  of  the 
whole  Caucasian  territory.  Further  than  that,  Bol- 
shevist influence  has  extended  into  Persia  and  politi- 
cal relationship  undoubtedly  has  been  established  be- 
tween the  Angora  Government  in  Asia  Minor  and 
Moscow.  The  Turks  have  drawn  most  of  their  am- 
munition for  the  war  with  Greece  from  Russian 
sources  across  the  Black  Sea.  Bolshevism  has  also 
obtained  considerable  influence  on  the  western  border 
of  the  Black  Sea, 

Nevertheless,  I  do  not  think  the  probabilities  point 
to  an  extension  of  Bolshevism,  for  it  is  a  rapidly  wan- 
ing political  theory  in  Europe.  Wherever  the  pressure 
of  human  misery  becomes  too  great  there  are  likely 
to  be  outbreaks  that  will  be  called  Bolshevistic.  But 
these  social  disorders  will  only  be  Bolshevistic  in  the 
sense  that  there  will  be  looting  of  property,  for  that 
is  what  Bolshevism  largely  means. 

The  economic  annihilation  of  Russia  has  for  the 
time  being  seriously  undermined  the  commercial  struc- 
ture of  Europe.  Until  some  progress  is  made  in  re- 
storing something  of  its  old  economic  importance  to 
Russia,  Europe  will  severely  feel  the  effect.  I  doubt 
if  we  clearly  realize  in  America  how  important  would 


1 82  WHAT  NEXT  IN  EUROPE? 

be  the  commercial  reaction  here  to  an  economic 
rehabilitation  of  Eastern  Europe.  Indeed,  it  takes 
considerable  imagination  and  economic  knowledge  to 
understand  and  follow  all  of  the  reactions  that  the  play 
of  international  commerce  creates. 

We  have  never  had  a  very  direct  or  extensive  trade 
relationship  with  Russia  or  with  the  bordering  coun- 
tries to  the  west  of  Russia.  We  need  to  import  the 
products  of  these  countries,  but  there  has  been  in  those 
countries  a  considerable  demand  for  our  goods.  The 
direct  exchange  of  our  goods  for  the  produce  of  East- 
ern Europe  is  not  the  thing  that  concerns  us.  If 
Eastern  Europe  could  be  rehabilitated  as  a  customer 
of  Western  Europe,  the  indirect  effect  would  be  felt 
in  the  greater  demand  of  Western  Europe  for  our  cot- 
ton, copper  and  other  raw  materials. 

The  potential  possibilities  that  would  follow  a  sound 
economic  development  of  affairs  in  the  Near  East 
concern  us  far  more  intimately  than  we  are  aware. 
Here  is  a  vast  population  capable  of  great  develop- 
ment. It  is  a  section  of  the  world  which  is  about  as 
little  known  to  us  commercially  as  the  Congo.  I  was 
told  that  for  a  period  of  twenty-seven  years  only  one 
ship  bearing  the  American  flag  came  into  the  harbor 
of  Constantinople,  though  they  have  seen  a  good  many 
of  our  ships  since  the  war.  The  people  seem  to  us 
peculiarly  alien,  the  complicated  political  life  insolvably 
puzzling.  The  endless  racial  warfare  makes  a  situa- 


RUSSIA  AND  THE  NEAR  EAST  183 

tion  wholly  uninviting  to  our  enterprise.  Nevertheless, 
there  are  undreamed-of  possibilities  for  mutual  advan- 
tageous contact. 

If  we  are  to  understand  the  peoples  of  this  region 
of  poverty  and  misrule,  we  must  recognize  that  the 
native  inhabitants  are  not  alone  to  blame.  The  Near 
East  has  been  a  field  in  which  the  great  powers  of 
Europe  have  displayed  their  political  ambitions  and 
commercial  selfishness.  It  has  apparently  been  their 
aim  to  see  what  can  be  gotten  out  of  it  rather  than 
what  can  be  made  of  it.  There  has  been  almost  no 
unselfish  guidance,  but  there  has  been  an  infinite 
amount  of  effort  to  secure  special  political  and  com- 
mercial advantage.  And  selfishness  continues  to  be 
the  chief  role  played  by  the  great  European  nations. 

Since  the  war  there  has  been  further  disintegration 
in  the  Near  East.  The  policy  of  England  and  France 
has  created  new  complications.  Instead  of  relieving 
the  dangerous  situations,  new  fires  of  discord  have 
been  lighted. 

A  great  deal  that  is  derogatory  could  be  said  of  the 
whole  Turkish  regime.  The  desire  to  drive  the  Turk 
out  of  Europe  is  quite  understandable,  but  the  manner 
in  which  the  Near  Eastern  problems  have  been  handled 
by  the  Allies  since  the  war  does  not  promise  a  better 
state  of  affairs. 

The  old  regime  of  the  Ottoman  Empire  has  been 
reduced  to  political  impotence.  The  Sultan,  with  his 


184  WHAT  NEXT  IN  EUROPE? 

official  household,  continues  to  reside  in  Constanti- 
nople. The  government  of  the  city,  however,  has  been 
under  military  occupation  ever  since  the  armistice. 
Both  the  military  and  naval  power  of  England,  France 
and  Italy  are  strongly  represented.  Great  Britain 
has  taken  the  leading  position  in  local  administration. 
This  military  occupation  has  brought  a  certain  amount 
of  order  and  safety,  for  the  time  being,  but  it  has 
done  nothing  to  aid  a  permanent  economic  reconstruc- 
tion. 

The  real  government  of  Turkey  is  no  longer  in  Con- 
stantinople, but  in  Angora,  where  all  the  patriotism 
and  the  nationalistic  ambitions  of  what  is  left  of  Turkey 
are  centered.  At  the  present  moment,  they  are  keener 
than  they  have  been  for  many  months.  Mustapha 
Kemal  has  been  created  a  Field  Marshal,  and  crowned 
"The  Victorious."  The  Allies  have  no  unified  policy 
of  dealing  with  this  outburst  of  Turkish  nationalism. 
Instead  of  that,  they  have  played  against  one  another 
for  political  and  commercial  advantage  and  have  been 
supporting  a  proposal  which  would  put  a  minority  in 
power.  We  have  been  represented  there  by  an  ex- 
tremely able  High  Commissioner,  Admiral  Mark 
Bristol.  The  situation  has  been  devoid  of  real  co- 
operation, however,  between  the  Allies  and  our  repre- 
sentative, or  even  between  the  Allies  themselves. 

There  are  Americans  in  Constantinople  who  believe 
that  it  would  still  be  possible  for  the  United  States 


RUSSIA  AND  THE  NEAR  EAST  185 

to  play  a  great  role  in  the  Near  East,  and  particularly 
in  Turkey.  They  believe  that  if  we  would  undertake 
a  direction  of  affairs  there  with  the  same  spirit  that 
we  displayed  in  Cuba  and  in  the  Philippines,  there 
might  be  a  surprising  transformation.  I  examined  the 
suggestion  that  has  been  made  that  we  might  take 
over  from  France  and  England  the  old  Ottoman  debt 
as  a  part  of  their  payment  to  us  of  Allied  indebted- 
ness and  that  there  might  be  developed  under  our  di- 
rection a  sound  financial  program  and  a  system  of 
public  improvements  which  would  embrace  a  develop- 
ment of  transportation,  both  by  railways  and  roads. 

But  there  can  never  be  a  thorough  improvement  in 
the  political  situation  unless  a  system  of  education  is 
developed.  That  can  be  done  at  comparatively  little 
cost.  The  whole  problem  is  not  so  much  one  of  find- 
ing outside  help  as  it  is  of  wise  direction,  direction 
which  is  unselfish,  far-sighted  and  patient. 

The  present  war  between  Turkey  and  Greece  is 
purely  a  war  of  imperialism  and  nationalism.  The 
Allies  are  responsible  for  it,  and  they  seem  helpless 
in  formulating  a  program  which  will  settle  the  differ- 
ences. There  was  no  sound  justification  for  the  Allies 
giving  Smyrna  to  Greece.  The  motives  which  led 
them  to  do  that  were  complex.  They  wanted  to  re- 
ward Greece — and  they  wanted  to  punish  Turkey. 
They  wanted  to  emphasize  their  objection  to  the  bad 
administration  of  Turkey,  but  they  had  no  sound  rea- 


1 86  WHAT  NEXT  IN  EUROPE? 

sons  upon  which  to  base  the  hope  that  Greek  admin- 
istration would  be  an  improvement.  Underneath  all 
of  those  reasons  was  a  desire  to  make  a  move  on  the 
political  chess  board  that  would  be  embarrassing  to 
Italy. 

There  has  of  course  been  misgovernment  in  Smyrna. 
There  has  been  misgovernment  everywhere  under 
Turkish  rule.  But  a  good  deal  of  the  evidence  that 
the  Allies  adduced  for  giving  Smyrna  to  Greece  con- 
sisted of  forged  documents.  The  true  facts  of  Turk- 
ish misgovernment  were  bad  enough,  but  they  did  not 
justify  the  occupation  by  Greece. 

Nowhere  in  Europe  has  the  post-armistice  play  of 
politics  been  as  little  successful  in  composing  a  dis- 
turbed situation  as  in  the  Near  East.  Nowhere  has 
national  selfishness  been  so  unrestrained,  nor  Allied 
cooperation  less  sincere.  The  Near  East  has  been  both 
a  great  offender  and  a  great  victim.  Internally  it  has 
been  a  field  of  unharmonized  racial  antagonisms,  of 
cruel  and  often  corrupt  government  administration. 
There  has  been  an  unenlightened  attitude  toward  mod- 
ern conditions  of  life,  a  failure  to  grasp  the  rudimen- 
tary principles  in  regard  to  the  economic  unity  of 
people. 

Imposed  from  the  outside,  however,  have  been  in- 
fluences that  are  deteriorating  in  every  characteristic. 
Instead  of  helping  the  Near  East  to  a  conception  of 
the  results  of  a  wise  and  just  political  and  economic 


RUSSIA  AND  THE  NEAR  EAST  187 

program,  it  has  been  made  the  field  in  which  the  na- 
tives have  been  able  to  study  at  close  range  the  very 
worst  of  Western  methods.  There  has  been  no  end 
of  underhand  diplomacy,  of  attempts  to  gain  special 
commercial  privilege,  and  of  efforts  to  manipulate  an- 
tagonisms to  gain  unwarranted  political  ends. 

All  that  does  not  mean  that  the  situation  is  hopeless. 
Instead,  it  points  toward  the  dramatic  improvement 
that  might  come  with  unselfish  guidance.  America 
could  undoubtedly  do  something  in  that  direction. 
We  could  not  revolutionize  the  situation  overnight,  but 
if  we  would  accept  a  certain  amount  of  political  re- 
sponsibility, the  good  that  we  might  accomplish  for 
the  people  of  the  Near  East,  and  indirectly  for  our- 
selves, would  be  quite  out  of  proportion  to  any  risk 
or  effort  involved. 

It  is  not  the  hopelessness  of  the  situation  in  Russia 
and  the  Near  East  that  has  gripped  my  mind,  but  the 
possibilities  of  it.  I  do  not  mean  possibilities  for  com- 
mercial conquest,  nor  opportunities  for  the  extension 
of  materialistic  designs.  I  have  suggested  elsewhere 
some  of  the  results  that  would  be  accomplished  if  the 
inter-Allied  debts  could  be  handled  in  such  a  way 
that  we  undertook  the  responsibility  for  an  important 
role  in  rehabilitating  Europe,  and  particularly  in  re- 
habilitating Eastern  Europe.  There  may  be  other 
ways  in  which  we  could  enter  that  field.  I  am  certain 
if  we  entered  it  with  an  unselfish  purpose  we  could 


i88  WHAT  NEXT  IN  EUROPE? 

accomplish  more  than  any  other  people.  Our  politi- 
cal situation  is  such  that  we  disarm  at  the  start  most 
of  the  criticism  of  selfish  political  maneuvering  which 
is  rightly  laid  at  the  door  of  every  European  nation, 
in  its  contact  with  its  neighbors. 

The  last  thing  I  would  suggest  is  that  America 
should  indiscriminately  pour  capital  into  Eastern 
Europe.  The  opportunity  to  do  that  with  advantage 
both  to  Europe  and  ourselves  might  come  later.  For 
the  present,  our  experience,  our  guidance,  our  effort  to 
make  Europe  self-helpful  is  needed  far  more  than  are 
our  dollars.  Our  money  alone  might  only  build  up 
new  and  unsatisfactory  complications. 

The  improvement  of  the  conditions  under  which  the 
people  of  the  Near  East  live,  through  the  development 
of  its  resources,  would  result  in  better  government  and 
more  stable  economic  conditions.  If  our  imagination 
could  grasp  its  possibilities  we  would  see  that  any 
contribution  we  might  make  toward  that  end,  far 
from  being  impractical  idealism,  would  be  the  sound- 
est and  most  promising  sort  of  practical  effort. 


CHAPTER  XII 
BULGARIAN  PROBLEMS 

WHEN  we  entered  Bulgaria  we  were  already  fa- 
vorably inclined  to  the  land  and  the  people.  Almost 
every  American  familiar  with  the  Balkans  with  whom 
we  had  conversed  had  independently  given  his  opinion 
that  the  Bulgarians  were  the  most  promising  of  all 
the  Balkan  people. 

The  new  Bulgaria,  shorn  from  old  territory  on  sev- 
eral sides  by  the  Treaty  of  Neuilly,  is  burdened  by 
huge  reparation  demands.  The  country  is  under  the 
tutelage  of  resident  allied  commissions,  and  is  isolated 
and  politically  friendless  so  far  as  its  immediate 
neighbors  are  concerned.  It  is  not  a  cheerful  example 
of  the  Peace  of  Paris,  but  the  Bulgarians  have  taken 
up  their  burdens,  unjust  though  they  feel  them  to  be, 
with  sturdy  patience. 

Bulgaria  never  had  her  heart  in  the  Great  War, 
although  the  vigor  of  her  blows  when  she  at  last  came 
to  deliver  them  on  the  side  of  Germany  was  un- 
doubted. King  Ferdinand  was  thoroughly  pro- 
German  in  his  sympathies,  but  his  people  did  not  share 
his  views.  They  felt  the  war  was  no  affair  of  theirs, 
and  it  was  with  the  greatest  political  difficulty  and  by 

189 


i9o  WHAT  NEXT  IN  EUROPE? 

the  narrowest  of  margins  that  King  Ferdinand  finally 
induced  the  Bulgarian  Assembly  to  sanction  the  coun- 
try's alliance  with  the  Central  Powers,  after  a  strenu- 
ous conference  between  the  King  and  the  political 
leaders.  It  is  said  that  Stamboulisky — a  peasant  who 
is  now  Premier — shook  his  fist  in  the  face  of  his 
Royal  Sovereign,  and  declared  that  to  force  Bulgaria 
into  the  struggle  would  cost  the  King  his  crown.  This 
disloyal  prediction  proved  to  be  correct,  and  the  late 
King  and  his  pliant  Prime  Minister  are  both  fugi- 
tives, resident  in  Germany.  To-day,  Stamboulisky  is 
the  real  ruler  of  Bulgaria,  and  Boris,  the  younger  son 
of  the  late  King,  reigns,  but  does  not  rule. 

So  adverse  were  the  peasants  of  Bulgaria  to  being 
made  food  for  cannon  in  a  war  in  which  they  felt 
they  had  no  interest,  that  it  was  necessary  to  execute 
six  thousand  of  them  before  any  could  be  induced  to 
enter  the  struggle  in  what  their  military  leaders 
thought  was  a  proper  spirit.  After  they  were  once 
in,  however,  they  left  no  question  as  to  their  fighting 
ability.  Horrible  stories  are  related  in  Serbia  of  the 
atrocities  of  the  Bulgarians,  for  the  racial  hatred  be- 
tween the  two  countries  is  intense. 

Bulgarians  feel  that  the  blame  for  the  war  rests 
squarely  on  the  shoulders  of  their  late  King  and  his 
Cabinet,  and  not  on  the  people.  The  day  before  I 
reached  Sofia,  all  the  members  of  that  Cabinet  that 
the  present  government  could  get  its  hands  on  were 


BULGARIAN  PROBLEMS  191 

placed  on  trial.  They  were  charged  with  the  guilt 
of  bringing  Bulgaria  unnecessarily  into  the  war,  and 
I  met  prominent  men  who  hoped  that  it  would  end  in 
an  execution,  which  would  be  an  example  to  future 
cabinets,  and  a  deterrent  against  future  wars. 

Bulgaria  has  had,  for  the  present,  quite  enough  of 
war.  She  earnestly  wants  peace.  She  is  terribly 
weighed  down  by  a  war  debt,  by  external  obligations, 
and  by  an  indemnity  amounting  to  two  and  a  quarter 
billion  leva  which  she  cannot  at  present  by  any  pos- 
sibility pay.  In  addition  to  her  loss  of  territory,  and 
the  obnoxious  allied  political  control,  she  has  an  ad- 
verse balance  of  trade,  and  is  suffering  from  the  com- 
mon curse  of  Central  Europe,  a  depreciated  currency. 

The  allies  have  been  vigorous  in  enforcing  their 
demands,  but  lax  in  keeping  their  promises.  They 
promised  Bulgaria,  after  carving  off  her  southern 
border  and  giving  it  to  Greece,  that  she  should  have 
free  access  to  the  yEgean.  It  has  not  been  done,  and 
her  water  communication  since  the  armistice  has  con- 
sisted only  of  a  mediocre  port  on  the  Black  Sea. 

Bulgaria  is  a  purely  agricultural  country.  Within 
its  new  boundaries  are  4,700,000  inhabitants.  There 
is  no  manufacturing,  and  eighty-seven  percent  of  its 
population  are  said  to  be  agricultural  peasants.  The 
capital,  Sofia,  is  a  sprawling  city  of  130,000,  and  is 
not  unlike  some  of  our  western  state  capitals,  except 
for  an  occasional  Turkish  mosque,  and  many  peas- 


192  WHAT  NEXT  IN  EUROPE? 

ants  in  curious  and  gaudy  costumes.  Bulgaria  mines 
its  own  coal,  and  raises  enough  sugar  beets  to  supply 
partially  the  national  needs.  But  on  the  whole  it  is 
a  primitive  peasant  country.  The  government  is  a 
limited  monarchy  in  type,  but  it  is  in  fact  a  peasant 
government,  with  a  peasant  Prime  Minister. 

There  was  at  one  moment  some  danger  that  Bul- 
garia would  turn  Bolshevist,  or  at  least  Communist, 
and  there  are  at  present  numerous  Communist  munici- 
pal governments.  The  peasant  government  has  insti- 
tuted certain  types  of  legislation  upon  which  the  allied 
commissions  look  askance.  For  example,  every  citi- 
zen, man  or  woman,  between  the  ages  of  eighteen  and 
fifty-five  must  work  for  at  least  ten  days  at  manual 
labor  every  year  for  some  public  purpose.  Its  appli- 
cation was  modified  under  allied  pressure,  though  it 
is  still  strictly  enforced,  no  matter  what  social  posi- 
tion a  person  may  occupy.  I  saw  a  group  watching 
the  labors  of  a  number  of  well  dressed  men  who  were 
planting  trees  and  raking  the  lawn  around  a  public 
building.  Every  male  citizen  must  perform  this 
minimum  of  public  service.  It  is  not  so  strictly  en- 
forced with  the  women,  and  Turkish  women  are 
exempted.  Even  the  school  children  have  to  give  ten 
days'  service  to  the  state.  They  put  school  premises 
in  order,  bind  books,  and  otherwise  contribute  to 
school  housekeeping.  The  men  may  be  sent  to  any 
place  that  public  service  is  required.  If  a  road  needs 


BULGARIAN  PROBLEMS  193 

re-surfacing,  or  a  new  bridge  is  required,  citizens  of 
any  station  in  life  may  be  summoned  as  manual  la- 
borers. Even  in  the  foreign  legations  this  service  is 
enforced,  and  Bulgarian  Embassies  are  having  a  ten 
days'  house  cleaning  in  many  foreign  capitals  such  as 
they  have  never  known  before. 

There  are  also  interesting  paternalistic  laws  enacted 
by  municipalities.  In  the  capital  city,  Sofia,  no  school 
girl  may  wear  a  hair  ribbon,  and  police  regulations 
include  very  specific  directions  to  curb  extravagance 
of  dress  by  women.  Fortunately,  they  do  not  apply 
to  the  gayly  embroidered  costumes  and  the  gold  and 
silver  ornaments  of  men  and  women  peasants,  which 
lend  an  operatic  atmosphere  to  the  city. 

The  simplicity  of  life  aimed  at  by  the  government 
is  in  a  measure  adopted  by  young  King  Boris.  At 
the  funeral  of  Ivan  Vazoff,  a  poet  of  national  re- 
nown, which  occurred  a  few  days  before  I  visited 
Sofia,  the  King  had  followed  the  cortege  on  foot,  in 
a  procession  that  passed  through  all  the  principal 
streets  of  the  capital. 

There  is  no  land  question  in  Bulgaria,  because  the 
peasants  own  their  own  farms.  Agriculture  is  not 
highly  developed,  and  methods  for  marketing  grain 
are  undeveloped.  The  surplus  which  is  raised  in  this 
country  with  eighty-seven  percent  of  peasant  popula- 
tion produces  exports  that  are  disappointingly  small. 
The  total  production  of  grain  this  year  is  estimated 


194  WHAT  NEXT  IN  EUROPE? 

at  2,800,000  tons,  an  increase  of  100,000  tons  over 
the  year  before,  and  300,000  tons  more  than  in  1919. 
The  requirements  for  domestic  consumption  are  said 
to  be  2,250,000  tons.  The  country  exported  last  year 
only  139,000  tons. 

Bulgaria  has  come  much  nearer  balancing  her 
budget  than  most  of  the  eastern  European  nations, 
though  her  total  budget  for  1921-22  contemplates  an 
expenditure  of  2,693,000,000  leva.  The  principal  items 
included  647,000,000  for  public  debt,  528,000,000  for 
war;  252,000,000  for  commerce,  industry  and  labor, 
and  228,000,000  for  public  instruction.  In  July  the 
taxes  were  revised,  and  the  government  intends  to 
raise  the  receipts  from  customs  and  from  tobacco  ma- 
terially, but  to  reduce  the  export  taxes.  The  minister 
of  finance  hoped  to  get  through  the  year  with  a  deficit 
in  the  neighborhood  of  300,000,000  leva.  The  con- 
solidated debt  was  stated  to  be  2,758,000,000  leva, 
and  the  bank  note  circulation  3,318,000,000  leva,  or 
700  leva  per  head  of  population. 

Bulgaria's  participation  in  Germany's  defeat  has 
caused  her  terrible  losses.  The  indemnity  mortgages 
her  future  for  thirty-three  years.  The  peace-makers 
carved  her  up  without  sympathy.  They  gave  a  slice 
on  the  north  to  Roumania;  they  took  away  on  the 
south  a  long  strip  of  Thrace  which  was  Bulgaria's 
outlet  to  the  ^Egean  Sea;  they  disbanded  her  army, 
prohibited  conscription,  and  allowed  her  a  gendarmerie 


BULGARIAN  PROBLEMS  195 

of  only  thirty-three  thousand  men.  They  coupled 
that  military  limitation  with  the  provision  that  there 
should  be  only  voluntary  enlistments,  and  that  each 
man  must  enlist  for  a  period  of  twelve  years.  A  large 
Reparations'  Commission  is  quartered  on  Sofia,  and 
she  must  pay  its  expenses,  as  well  as  those  of  an 
allied  military  Commission. 

The  Reparations'  Commission  is  a  very  sore  point 
with  the  Bulgarians.  They  claim  that  it  still  numbers 
one  hundred  and  fifty  members  who  were  drawing 
excessive  salaries  out  of  the  Bulgarian  Treasury.  The 
allied  representatives  denied  that  the  Commission  is 
as  large  as  this,  but  it  is  certainly  large  enough  to 
occupy  important  buildings,  and  the  Bulgarians  feel 
that  its  presence  is  unnecessarily  emphasized  in  their 
political  life. 

There  are  small  incidents  connected  with  the  occu- 
pation by  allied  representatives  which  appear  to  be 
very  irritating.  I  was  told,  for  example,  that  one  of 
the  Commissioners,  on  his  arrival,  looked  the  town 
over,  picked  out  one  of  the  best  houses,  and  requi- 
sitioned it  for  his  personal  use.  This  house  happened 
to  be  occupied  by  an  old  man,  afflicted  with  paralysis, 
and  he  objected  to  being  turned  out  of  his  home.  The 
government  explained  the  situation,  and  said  they 
would  provide  some  other  house  that  was  equally  de- 
sirable. The  Commissioner  declared  that  this  was  the 
only  house  that  he  would  occupy,  and  threatened  to 


ig6  WHAT  NEXT  IN  EUROPE? 

return  to  his  country  until  the  Bulgarian  government 
was  prepared  to  show  him  proper  courtesy;  the  gov- 
ernment had  to  submit  to  his  demands. 

The  antipathy  toward  the  allied  commission  is  a 
petty  matter.  It  is  the  terms  which  the  allies  made 
in  regard  to  their  army  that  have  struck  deep  into  the 
sensibilities  of  the  Bulgarians.  Under  its  provisions 
the  government  finds  it  impossible  to  organize  even 
the  small  gendarmerie  that  the  terms  of  the  treaty 
of  peace  permit.  No  peasant  will  enlist  for  twelve 
years.  His  Majesty  King  Boris  showed  the  greatest 
concern,  in  the  talk  I  had  with  him,  over  this  feature 
of  the  situation.  It  is  felt  that  the  government  can- 
not secure  the  enlistment  of  the  full  complement  of 
the  gendarmerie  on  such  terms.  The  people  who  do 
offer  themselves  for  enlistment  are  the  worst  sort  of 
characters,  men  with  criminal  records,  ne'er-do-wells 
who  have  been  unable  to  earn  a  living,  and  men  with 
Bolshevistic  tendencies  who  want  to  get  into  the  army 
in  order  that  they  may  corrupt  the  organization. 

The  result  of  the  compulsory  disbanding  of  the  army 
seems  to  be  full  of  danger.  Every  one  declared  that 
the  Bulgarians  desired  only  peace  and  internal  order, 
but  to  ensure  that  a  certain  number  of  soldiers  are 
required  as  a  constabulary,  to  guarantee  order  at 
home.  They  feel  that  Bulgaria  is  surrounded  by  hun- 
gry neighbors;  that  Bolshevism  is  but  a  little  way  off, 
over  the  Black  Sea,  and  that  it  is  decidedly  unsafe  to 


BULGARIAN  PROBLEMS  197 

leave  the  government  without  the  protection  of  an 
adequate  armed  force. 

Another  burning  political  issue  is  the  way  the 
boundaries  are  drawn.  On  the  west,  the  Jugo-Slav 
frontier  has  been  brought  uncomfortably  near  to  Sofia. 
It  is  within  thirty  miles.  It  is  so  close  that  a  dash 
might  conceivably  be  made  at  any  time  that  would 
endanger  the  Bulgarian  capital.  They  believe  that  the 
large  Bulgarian  population  in  Thrace  is  subject  to  an 
execrable  political  administration  by  Greece.  Indeed, 
every  race  that  has  experienced  Greek  administration 
testifies  that  it  is  a  monumental  failure,  and  the  num- 
ber of  refugees  from  new  territories  occupied  by 
Greece  proves  the  indictment.  I  was  told  that  three 
hundred  thousand  Bulgarians  had  been  driven  out  of 
Thrace,  and  were  now  refugees  in  Bulgaria.  Many 
of  them  have  found  their  way  to  Sofia, 

In  addition  to  the  Bulgarian  refugees  a  great  num- 
ber of  Russian  refugees  have  appeared  in  Bulgaria; 
from  Constantinople.  This  influx  has  made  a  tre- 
mendous social  problem  for  the  people  of  Sofia.  It 
has  resulted  in  a  most  acute  housing  situation.  In  an 
effort  to  relieve  this,  and  with  its  background  of  so- 
cialist tendencies,  the  Bulgarian  peasant  government 
has  undertaken  to  quarter  peasant  refugees  in  prac- 
tically every  house  in  Sofia.  If  the  house  happens  to 
belong  to  a  political  enemy,  or  to  some  one  who  is 
regarded  as  a  profiteer,  the  worst  lot  of  peasants  that 


198  WHAT  NEXT  IN  EUROPE? 

can  be  found  is  quartered  in  the  main  drawing  room ; 
bathrooms  become  kitchens;  living  rooms  are  turned 
into  tenement  quarters.  In  Sofia,  no  one's  home  is 
his  castle. 

This  confused  and  complex  social  situation  is  breed- 
ing a  certain  amount  of  Bolshevism  among  the  refu- 
gees. Their  present  situation  does  not  stimulate  them 
to  work.  They  now  have  a  foothold  in  the  houses 
of  the  well-to-do,  and  they  say  they  will  wait  for  the 
day  when  they  can  take  everything.  The  prosperous 
citizens  profess  considerable  fear  of  Bolshevism.  But 
in  that  connection  it  should  be  remembered  that  Bul- 
garia is  a  country  of  peasants,  owning  their  own  lands, 
and  that  the  Russian  refugees  are  naturally  anti- 
Bolshevistic.  Consequently  it  would  seem  doubtful 
if  Bolshevism  can  thrive  in  Bulgarian  soil.  But  with- 
out an  adequate  gendarmerie  the  government  feels 
that  it  might  be  possible  for  a  very  small  group  of 
revolutionists  to  overthrow  the  government  and  take 
command  of  the  situation,  as  they  did  in  Russia. 

'Among  the  Russian  refugees  are  several  thousands 
of  Wrangel's  troops.  They  are  still  being  held  to- 
gether in  a  semi-compact  military  body,  and  were  sup- 
posed to  be  receiving  contributions  for  their  main- 
tenance from  the  former  Russian  Ambassador  at 
Washington.  Some  of  these  troops  get  occasional 
work,  but  on  the  whole  they  do  not  earn  a  living. 
Most  of  the  Russian  refugees  are  living  in  great  hard- 


BULGARIAN  PROBLEMS  199 

ship.  Constantinople  is  continually  forcing  more  of 
its  Russian  refugees  into  Bulgaria,  because  food  there 
is  very  cheap.  Ten  thousand  more  of  WrangeTs 
troops  were  expected  to  arrive  soon  after  I  was  there, 
and  it  was  said  that  their  maintenance  was  also  pro- 
vided for  out  of  funds  still  left  in  the  hands  of  the 
diplomatists  of  the  old  regime. 


PART  III 
RECONSTRUCTION 


IN  the  preceding  chapters  the  reader  has  gained  a 
rapid  and  perhaps  incomplete  view  of  the  background 
of  Europe's  appalling  economic  situation  and  of  the 
problems  which  harass  individual  nations.  If  there 
was  no  other  side  to  the  picture;  if  it  was  necessary 
to  close  this  book  on  a  note  of  despair  without  pre- 
senting some  reasonable  hope  of  a  brighter  future,  the 
reader  might  justly  conclude  that  the  civilization  of 
Europe  was  doomed  to  slow  decay  and  that  the  Con- 
tinent was  facing  a  return  to  what  has  been  called  the 
"Dark  Ages." 

But  there  are  remedial  influences,  some  of  them 
already  at  work,  others  mere  projects  that  sooner 
or  later  must  be  put  into  concrete  form.  One  cannot 
believe  that  the  antagonism  between  nations,  the  di- 
vided counsels,  or  simply  our  apathy,  will  be  suffi- 
cient to  check  the  impulses  of  so  many  men  every- 
where to  find  some  means  of  bringing  order  out  of 
Europe's  economic  chaos.  The  structure  of  European 
civilization  is  so  magnificent  that  we  must  not  let  it 
fall.  It  is  unthinkable  that  the  work  of  ages,  the  hopes 
of  those  millions  of  men  and  women  who  believed 
that  the  beginning  of  peace  was  to  be  the  end  of 
starvation  and  suffering,  are  to  be  extinguished  simply 
because  mankind  cannot  agree  on  the  measures  that 

203 


204  WHAT  NEXT  IN  EUROPE? 

must  be  adopted.  We  cannot  lightly  face  the  misery 
that  will  fall  on  a  great  section  of  humanity  if  we 
allow  these  splendid  nations  to  plunge  so  far  into  the 
pit  of  despair  that  they  cannot  be  rescued. 

Something  must  be  done,  and  we  cannot  wait  too 
long.  In  the  following  chapters  I  have  pointed  out 
some  of  the  curative  influences  at  work — the  League 
of  Nations  which  is  succeeding  in  some  measure  in 
binding  together  again  the  shattered  unity  of  Europe; 
the  new  attitude  of  the  workmen  of  the  Continent 
which  promises  to  allow  labor  and  capital  to  work  in 
harmony  together  without  the  menace  of  class  war- 
fare and  revolution.  These  are  both  influences  that 
will  tend  to  cure  the  broken  spirit  and  the  hatreds  of 
European  peoples. 

But  there  must  be  practical  and  material  measures 
too.  Something  must  be  done  to  check  the  mechanical 
plunge  of  the  standards  of  value  into  the  cortex  of 
depression  and  inflation.  The  crumbling  foundations 
of  the  economic  life  of  these  nations  must  be  rebuilt, 
for  European  civilization  threatens  to  collapse.  The 
staggering  load  of  domestic  and  international  debts 
must  be  lightened;  credit  must  be  reestablished  and 
faith  in  the  security  of  the  future. 

It  is  in  the  belief  that  we  must  begin  to  think  o£ 
these  problems  that  I  have  presented  in  later  chapters 
a  plan  by  which  European  currencies  may  be  stabi- 
lized, and  another  plan  for  the  settlement  of  the  enor- 


WHAT  NEXT  IN  EUROPE?  205 

mous  sums  owed  to  the  United  States  by  the  Allies 
and  for  reconstruction  in  Europe.  It  is  obvious,  since 
chis  country  is  the  only  great  reservoir  of  almost  un- 
limited capital  that  remains,  that  Europe  cannot  be  re- 
habilitated without  aid  from  the  United  States.  It  is 
not  necessary  that  the  plans  that  I  have  outlined  should 
be  accepted,  although  something  approximating  them 
must  be  accomplished.  The  great  mass  of  intelligent 
opinion  in  this  country  must  be  awakened  to  the 
knowledge  that  without  us  Europe  may  perish,  and 
what  that  catastrophe  would  mean.  And  when  the 
time  comes,  as  it  must  soon,  for  our  participation  and 
our  guidance  in  the  rebuilding  of  Europe's  broken 
spiritual  and  material  wealth,  we  must  be  prepared 
to  understand  their  need  and  our  opportunity. 


CHAPTER  XIII 

THE  INFLUENCE  OF  THE  LEAGUE  OF 
NATIONS 

THE  results  of  the  Treaties  made  at  Paris  have 
proven  exceedingly  unfortunate  in  most  respects,  it 
is  true,  but  it  was  an  extraordinarily  difficult  task 
which  the  Peace  Conference  faced,  and  the  bitterness 
with  which  they  were  conceived  was,  perhaps,  almost 
inevitable  in  view  of  the  background  of  the  war. 
The  work  at  Paris  was  not  all  blind  and  destructive. 
I  would  not  for  a  moment  give  the  impression  that 
I  think  any  of  it  was  intentionally  destructive.  There 
is  no  situation  in  Europe,  no  matter  how  unwise  the 
actions  that  have  created  it  may  appear  to  be,  that  on 
sympathetic  examination  will  not  be  found  to  have 
two  sides.  Criticism  and  condemnation  are  to  be 
heard  on  every  hand,  leveled  by  every  people  against 
some  other  nation.  The  treaties  were  imposed;  they 
were  not  negotiated.  They  were  based  on  ex  parte 
judgments  which  are  almost  always  unsound. 

Paris  was  not  wholly  without  vision,  and  some  at- 
tempt at  sound  reconstruction.  The  formation  of  the 
League  of  Nations  was  the  evolution  of  a  worthy 
ideal.  If  the  same  spirit  had  genuinely  dominated  the 

206 


INFLUENCE  OF  LEAGUE  OF  NATIONS     207 

terms  of  peace,  the  Treaties  would  have  been  far  more 
wisely  drawn,  and  the  suffering  of  both  allies  and 
enemies  would  have  been  immeasurably  less.  Con- 
demnation of  the  peace  terms,  therefore,  should  not 
extend  to  the  League  of  Nations,  although  technically 
the  Covenant  is  part  of  the  Treaties. 

In  constituting  the  League,  there  was  a  sound  at- 
tempt to  create  a  new  agency  of  order  and  recupera- 
tion in  Europe.  Faith  in  what  that  agency  might  ac- 
complish was  the  only  inducement  which  led  some  of 
the  delegates  to  sanction  agreements  in  which  they  did 
not  believe.  Such  statesmen  as  General  Smuts  signed 
the  Treaties  with  the  greatest  reluctance.  They  did 
so  because  they  believed  that  in  the  League  of  Na- 
tions the  world  was  obtaining  a  new  instrument  of 
cooperation  and  justice  which  could  rectify  many  of 
the  mistakes  in  the  Treaties  by  administering  and 
modifying  them  in  ways  that  would  make  them  tol- 
erable. They  hoped  that  the  League  would  more  than 
compensate  for  the  evils  of  the  Treaties. 

I  doubt  if  any  one  can  claim  that  the  constitution 
of  the  League  of  Nations  was  a  perfect  conception. 
And  I  was  never  convinced  that  the  United  States 
ought  to  become  a  member  unless  some  of  the  terms 
of  the  Covenant  were  altered.  Without  the  United 
States,  however,  the  League  was  almost  fatally  handi- 
capped from  the  beginning.  The  United  States  could 
have  brought  to  the  administration  of  the  League  an 


ao8  WHAT  NEXT  IN  EUROPE? 

objective  and  authoritative  attitude  which  no  European 
nation  can  furnish. 

We  have  generally  underestimated,  however,  the 
actual  accomplishments  of  the  League  since  its  for- 
mation. It  has  meant  far  less  than  its  designers  hoped, 
but  it  has  pointed  the  road  to  future  European  wel- 
fare. 

Unless  among  the  people  of  Europe  there  is  a 
growth  of  the  spirit  of  justice  in  international  rela- 
tions, an  understanding  of  the  folly  of  selfishness  and 
intrigue,  and  a  recognition  of  their  unity  of  interests, 
there  is  nothing  but  decay  and  disintegration  ahead. 
These  principles  form  the  moral  basis  of  the  League 
of  Nations. 

It  is  not  perfervid  rhetoric  to  say  that  European 
civilization  is  facing  a  complete  breakdown.  In  a 
poisoned  atmosphere  of  continued  suspicion  and  an- 
tagonism, there  is  death,  for  Europe  can  only  live 
through  cooperative  effort.  Militarism,  uncurbed 
racial  hatreds,  blindness  to  the  importance  of  economic 
inter-dependence,  and  exaggerated  nationalism  are  all 
pushing  Europe  toward  disaster.  The  only  permanent 
economic  agency  for  the  recuperation  of  the  continent, 
which  has  so  far  been  put  in  operation,  is  the  League 
of  Nations. 

An  observation  of  the  work  of  the  League  at  Ge- 
neva leads  one  quickly  to  the  conclusion  that  it  is  not 
a  superstate,  although  one  might  suspect  after  read- 


INFLUENCE  OF  LEAGUE  OF  NATIONS     209 

ing  the  Covenant  that  it  would  become  one.  It  might 
be  said  that  it  has  proved  to  be  weak,  that  it  has  been 
impotent  to  accomplish  important  aims  and  that  it  dis- 
cusses but  does  not  act,  but  the  fear  that  a  political 
Frankenstein  has  been  built  up  should  be  quieted. 

However  far  short  of  expectations  the  accomplish- 
ments of  the  League  have  been,  they  have  by  no  means 
been  barren  of  practical  results.  I  have  spoken  else- 
where of  how  impressive  is  the  organization  of  the 
Secretariat.  Sir  Eric  Drummond,  the  permanent 
Secretary  of  the  League  of  Nations,  is  at  its  head. 
So  far  as  he  is  responsible  for  the  creation  of  the 
permanent  organization  he  is  building  such  a  monu- 
ment to  efficiency  and  high  purpose  as  is  given  to  few 
men  to  erect.  A  comparison  of  this  small  group  of 
men  with  the  organization  representing  any  govern- 
ment or  other  undertaking  with  which  I  am  familiar 
is  astonishingly  to  its  advantage.  It  has  proved  that 
there  can  be  brought  together  a  group  of  men  of  high 
purpose,  who  can  rise  above  narrow  national  preju- 
dice to  view  Europe  comprehensively.  The  world  is 
ripe  for  a  new  type  of  statesmanship,  one  that  com- 
prehends the  unity  of  interest  among  the  different  na- 
tions of  Europe.  There  are  signs  of  the  birth  of  such 
statesmanship  at  Geneva. 

Among  the  positive  accomplishments  of  the  League 
may  be  cited  the  Brussels  Finance  Conference.  At 
that  Conference  a  great  group  of  nations  for  the  first 


210  WHAT  NEXT  IN  EUROPE? 

time  cooperated  in  drawing  up  what  are  now  gen- 
erally accepted  to  be  the  soundest  economic  and  finan- 
cial proposals  which  have  yet  been  conceived  of  for 
the  economic  reconstruction  of  Europe. 

In  creating  the  financial  and  economic  committees 
of  the  League  there  were  brought  together  some  of 
the  best  trained  minds  in  Europe.  Those  committees 
have  laid  the  foundations  for  two  major  projects;  the 
economic  regeneration  of  Austria,  and  second,  the  Ter 
Meulen  scheme  for  the  creation  of  sound  international 
credits. 

The  plan  for  the  rehabilitation  of  Austria  was 
blocked  by  the  inaction  of  the  United  States.  We 
blocked  it  not  because  we  actively  objected  to  it,  but 
because  we  took  so  little  interest  that  we  failed  to 
give  any  serious  consideration  to  the  subject.  Aus- 
tria must  have  temporary  financial  assistance.  Her 
credit  is  exhausted.  She  raises  but  a  fraction  of  the 
food  she  requires.  She  is  temporarily  handicapped  in 
producing  and  finding  a  market  for  her  manufactured 
goods,  and  thus  is  left  without  means  of  providing 
international  credits  with  which  to  pay  the  most  es- 
sential items  in  her  grocery  bill.  The  financial  com- 
mittee of  the  League  of  Nations  studied  this  problem 
with  great  intelligence,  and  formulated  a  plan  under 
which  temporary  credits  could  be  supplied  to  Austria, 
if  these  fresh  credits  could  be  given  priority  over  old 
liens.  Every  European  nation  having  claims  against 


INFLUENCE  OF  LEAGUE  OF  NATIONS     211 

Austria  agreed  to  subordinate  those  claims  to  the  lien 
of  fiesh  loans  which  would  keep  Austria  alive  during 
the  period  of  readjustment  which  must  precede  her 
becoming  a  self-supporting  nation. 

The  United  States  Grain  Corporation,  after  the 
armistice,  supplied  wheat  to  Austria,  creating  a  debt 
of  twenty-four  million  dollars  due  to  the  United 
States.  Our  claim  was  entirely  just,  but  so  long  as 
it  was  permitted  to  stand  in  its  present  position  Aus- 
tria could  not  obtain  the  further  loan  which  would 
temporarily  tide  over  her  food  problem.  We  did  not 
refuse  to  subordinate  that  claim,  but  we  were  not  suffi- 
ciently alive  to  the  importance  of  the  matter  to  give 
it  any  serious  consideration.  We  filed  it  under  the 
general  heading  of  inter-allied  obligations  and  took 
no  special  action  on  the  matter.  The  well-conceived 
project  for  the  economic  rehabilitation  of  Austria  was 
blocked.  Enthusiasm  for  it  has  now  grown  cold  and 
it  is  doubtful  if  it  can  be  revived. 

The  League  of  Nations  has  made  progress  in  work- 
ing out  an  entirely  new  theory  under  which  the  po- 
litical and  economic  boundaries  of  a  district  need  not 
be  identical.  The  development  of  such  a  theory  is 
essential  in  solving  the  Upper  Silesian  problem,  where 
an  industrial  district  was  politically  divided  between 
two  countries  while  at  the  same  time  its  economic  in- 
tegrity was  in  a  large  measure  preserved.  This  new 
principle  in  international  relations  can  be  applied  to 


212  WHAT  NEXT  IN  EUROPE? 

the  difficulties  of  neighboring  states.  It  deserves 
study. 

The  first  concerted  effort  to  break  down  the  trade 
barriers  in  Europe,  which  have  resulted  from  the  un- 
restrained erection  of  political  barriers,  has  been 
through  the  League  of  Nations.  It  organized  an  in- 
ternational conference  in  Paris  on  passports,  customs 
duties  and  transport  difficulties.  The  result  of  that 
conference  is  now  working  out  in  an  economic  policy 
which  has  the  support  of  many  states. 

The  League  arranged  another  international  confer- 
ence at  Barcelona.  Representatives  of  forty  nations 
sat  down  there  to  study  the  wihole  question  of  free- 
dom of  communications  and  transit,  as  affecting  rail- 
roads, rivers  and  harbors.  A  convention  on  the  gen- 
eral principles  of  freedom  of  communication  and 
transit  was  drawn  up.  Detailed  recommendations 
were  made  for  the  operation  of  international  railroads 
and  international  ports.  Out  of  that  conference  has 
come  an  Advisory  Committee  on  Freedom  of  Com- 
munications and  Transit,  which  promises  to  be  use- 
ful in  bringing  nations  together  on  these  vital  issues. 

The  League  is  becoming  an  agency  for  order  in 
Europe.  It  gives  some  assurance  against  sudden  war. 
It  has  successfully  mediated  in  three  serious  interna- 
tional disputes.  It  composed  a  dispute  between  Sweden 
and  Finland  in  regard  to  the  Aland  Islands.  It 
averted  a  serious  strain  between  France  and  Great 


INFLUENCE  OF  LEAGUE  OF  NATIONS     213 

Britain,  Germany  and  Poland  in  disposing  of  the  Up- 
per Silesian  difficulty.  It  undertook  mediation  between 
Jugo-Slavia  and  Albania.  In  addition,  it  has  kept  the 
Poles  and  Lithuanians  from  fighting  for  a  year  and 
a  half,  and  has  narrowed  their  dispute  over  Vilna 
to  a  point  where  its  final  adjustment  is  not  far  off. 

For  the  first  time  in  history  the  League  has  created 
a  real  world  court,  and  has  provided  the  machinery 
for  the  peaceful  settlement  of  international  disputes. 

It  has  become  the  medium  for  appeal  in  any  well 
established  charge  of  the  suppression  of  minorities 
in  segregated  districts.  It  has  obtained  from  fifteen 
different  countries  in  Europe  guarantees  against  the 
abuse  of  the  rights  of  minorities.  In  this  field,  it  is 
true  that  it  has  not  yet  been  notably  successful,  but 
it  is  the  only  agency  that  is  making  any  progress. 
The  field  is  a  peculiarly  difficult  one.  In  it  the  League 
has  not  yet  shown  much  courage  or  force. 

The  League  has  accomplished  a  good  deal  in  the 
way  of  initiating  a  feeling  of  European  solidarity  and 
common  responsibility.  It  has  served  as  a  bridge  be- 
tween the  Allies,  their  former  enemies,  and  the  neutral 
peoples.  Austria  and  Bulgaria  have  been  admitted  to 
full  membership,  and  Germany  has  been  asked  to  co- 
operate in  a  series  of  conferences  on  finance,  labor 
and  transit. 

The  investigations  that  it  has  made  in  the  drug 
traffic,  "white  slavery,"  unemployment  and  child  la- 


2i4  WHAT  NEXT  IN  EUROPE? 

bor,  have  formed  a  body  of  influential  opinion  on  these 
problems  that  will  aid  in  obtaining  unified  measures 
for  dealing  with  them  throughout  Europe. 

Any  one  who  studies  thoughtfully  the  fundamental 
causes  of  poverty  and  distress  in  Europe,  in  relation 
to  its  unbounded  resources,  its  immeasurable  oppor- 
tunities for  improved  production,  its  splendid  cities 
and  vast  industrial  plants,  must  arrive  at  the  conclu- 
sion that  Europe  is  suffering  unnecessarily.  The 
trouble  does  not  lie  in  the  shortcomings  of  nature, 
nor  in  any  lack  of  the  machinery  of  civilization.  The 
people  of  Europe  could  be  bountifully  fed,  well  clothed, 
and  could  live  on  a  high  plane  of  material  comfort  if 
there  could  be  reasonable  cooperation  between  racial 
and  political  groups. 

At  the  present  time  there  is  something  approximat- 
ing political  and  industrial  anarchy.  There  are  no 
general  laws  effectively  governing  the  conduct  of  one 
nation  toward  another,  and  no  recognition  of  the  eco- 
nomic unity  which  might  bring  potential  industrial 
forces  into  effective  play.  Europe  is  idle,  or  rather 
ineffectively  employed,  and  suffers  from  great  want. 
Insurmountable  barriers  prevent  freedom  of  commer- 
cial communication.  The  machinery  of  credit  is  de- 
moralized and  the  free  interchange  of  goods  is  made 
impossible.  Nations  desperately  struggling  for  their 


INFLUENCE  OF  LEAGUE  OF  NATIONS     215 

own  existence  blindly  endeavor  to  gain  advantage  at 
the  cost  of  their  neighbors.  They  fail  to  recognize 
that  in  the  complicated  inter-relations  of  modern  life 
their  own  prosperity  is  dependent  on  the  well-being 
of  their  neighbors.  There  is  no  reasonable  restraint 
in  international  relationships.  Supreme  national  sov- 
ereignty is  grotesquely  exaggerated.  There  is  uni- 
versal suspicion  and  cynical  disbelief  in  the  good  faith 
of  others.  This  selfish  maneuvering  for  special  ad- 
vantage results  in  disadvantage  for  all.  Liberty,  and 
the  hope  of  progress,  are  lost  in  international  anarchy. 

All  these  influences  are  threatening  the  funda- 
mentals of  civilization.  However  convinced  America 
may  be  that  it  should  keep  out  of  the  cauldron  of 
European  evils,  it  seems  little  enough  to  ask  that  we 
should  at  least  give  some  consideration  to  the  possi- 
bility of  correcting  and  diverting  these  disintegrating 
influences.  America  has  had  experience  such  as  no 
other  nation  in  the  world  has  ever  had,  in  free  com- 
munication, cooperation  between  states  and  the  gov- 
erning of  large  numbers  of  people  and  wide  territories, 
which  should  qualify  her  to  do  some  clear  objective 
thinking  about  the  plight  which  Europe  is  in. 

It  is  entirely  out  of  the  range  of  possibility  that  any 
single  formula  can  be  suggested  which  will  banish 
these  evils.  No  single  prescription  will  cure  all  the 
diseases  of  these  sick  states.  There  are  some  general 


216  WHAT  NEXT  IN  EUROPE? 

considerations,  however,  that  must  be  taken  into  ac- 
count before  a  comprehensive  program  of  reconstruc- 
tion can  be  formulated. 

One  of  these  considerations  I  have  come  to  believe 
points  to  the  necessity  for  a  new  concept  of  the  state. 
Unbridled  state  sovereignty  means,  in  its  logical  con- 
clusion, the  unrestricted  right  of  every  nation  to  fol- 
low the  course  that  it  chooses,  without  regard  to  the 
effect  that  this  course  may  have  upon  other  nations. 
National  liberty  of  action  is  construed  to  mean  the 
extreme  development  of  this  theory  of  supreme  state 
sovereignty,  which  seems  to  be  leading  the  continent 
of  Europe  toward  international  disaster. 

If  we  take  the  analogy  between  the  freedom  of  the 
individual  and  of  the  nation,  we  will  be  able  to  think 
more  clearly  of  international  affairs.  For  the  last 
two  centuries  there  has  been  slowly  crystallizing  in  the 
minds  of  men  a  new  definition  of  what  constitutes 
personal  liberty.  In  its  primitive  conception  it  meant 
complete  freedom  of  action  on  the  part  of  the  indi- 
vidual. We  have  seen  evolution  in  that  conception, 
until  we  have  now  come  to  realize  that  complete  hu- 
man liberty  in  a  numerous  society  can  only  be  attained 
by  the  imposition  of  restrictions  and  the  creation  of 
restraining  laws  which  protect  weak  and  strong  alike. 
Anarchy  is  not  liberty ;  unrestrained  right  to  do  as  one 
wills  would  mean  a  society  in  which  fairness,  justice 
and  freedom  ceased  to  exist.  Without  restraint  the 


INFLUENCE  OF  LEAGUE  OF  NATIONS     217 

strong  would  become  predatory;  force,  rather  than 
justice,  would  rule;  cooperation  would  be  impossible. 

Civilization  does  not  mean  material  accumulations. 
It  means  the  ability  to  live  together  under  recognized 
rules  of  justice  and  good  order.  It  means  restraint 
upon  the  individual  in  his  relations  with  his  fellows. 

Under  that  definition  of  civilization,  and  I  believe 
it  is  the  only  definition  that  stands  every  test,  Europe 
is  uncivilized.  Europeans  have  shown  an  inability  to 
dwell  amicably  together.  Is  not  an  important  reason 
for  that  to  be  found  in  the  theory  of  supreme  state 
sovereignty  ? 

What  would  the  American  continent  have  been  with 
forty-eight  independent  political  entities,  blind  to  their 
economic  unity,  antagonistic  through  racial  prejudice, 
uncontrolled  by  any  common  rule  governing  their 
inter-relationships?  The  development  of  our  history 
has  largely  been  a  story  of  the  imposition  of  restraints 
upon  individual  commonwealths,  the  establishment  of 
rules  of  conduct  for  each  state  in  relation  to  other 
states. 

It  is  along  the  lines  of  this  definition  of  individual 
liberty  that  I  believe  the  concept  of  the  state  must  be 
changed.  The  idea  of  the  supreme  sovereign  right  of 
nations  must  be  surrendered.  Under  such  a  definition 
as  I  have  in  mind  a  state  would  be  entirely  free  to 
manage  its  domestic  affairs  as  it  saw  fit.  In  all  its 
foreign  relations  its  conduct  would  be  made  to  con- 


218  WHAT  NEXT  IN  EUROPE? 

form  to  the  best  interests  of  the  society  of  nations. 
That  would  not  be  a  loss  of  freedom;  it  would  be  the 
attainment  of  liberty. 

At  the  present  time  Europe  is  facing  in  exactly  the 
opposite  direction.  The  idea  of  self-determination  has 
made  nationalism  blaze  up  in  new  fires.  In  its  appli- 
cation by  the  Peace  Treaties  it  has  proven  one  of  the 
greatest  curses  that  has  fallen  upon  Europe.  Never- 
theless, the  theory  that  the  existence  of  governments 
should  depend  upon  the  consent  of  the  governed  is 
fundamentally  right  and  just.  But  it  was  a  mistake 
to  bring  forward  the  idea  of  political  self-determina- 
tion at  the  risk,  even  for  the  time  being,  of  neglecting 
the  economic  consequences  of  setting  up  new  national 
boundaries.  New  states  were  constituted  without 
making  any  provision  for  their  conduct  toward  other 
states  and  without  recognition  of  the  economic  neces- 
sity for  cooperation. 

Doubtless  this  was  done  because  statesmen  had  not 
investigated  the  problem.  I  was  interested  in  the 
charge  made  by  a  Turkish  girl  in  Constantinople  Col- 
lege. She  believed  that  the  noble  political  theory  of 
self-determination  had  been  seized  upon  by  Allied 
statesmen  as  a  weapon  by  which  old  states  could  be 
dismembered,  racial  antagonisms  used  for  their  own 
ends,  and  new  political  disorder  created,  so  that 
throughout  a  great  part  of  Europe  no  state  would  be 
left  large  enough  to  be  of  military  importance.  If  by 


INFLUENCE  OF  LEAGUE  OF  NATIONS     219 

any  chance  that  charge  is  true,  the  end  was  attained  at 
a  fearful  cost.  Military  units  have  been  reduced  in 
size,  but  the  creation  of  new  sovereign  states  has  dis- 
rupted the  old  economic  unity.  Unless  the  theory  of 
state  sovereignty  is  modified,  that  disruption  may  go 
to  an  appalling  length. 

With  such  a  conception  of  the  state  as  I  have  out- 
lined, the  evil  effect  of  self-determination  would  dis- 
appear.    Instead,  its  application  might  be  almost  in- 
definitely extended.     As  self-determination  has  been 
carried  out,  it  has  initiated  disastrous  economic  conse- 
quences.    At  the  same  time,  it  has  not  entirely  cured 
the  political  evils  that  it  was  intended  to  remedy.    For 
example,  the  Czechs  have  been  released  from  an  im- 
posed domination  of  a  governing  class  of  Germans 
with  political  headquarters  in  Vienna.     But  there  re- 
main in  Czecho-Slovakia  three  million  Germans,  who 
now  consider  themselves  an  oppressed  minority,  while 
the  Slovak  people  are  too  loosely  related  to  the  new 
republic  to  be  satisfied.    Illustrations  of  this  sort  could 
be  greatly  multiplied.      Instead  of  composing  racial 
differences,  they  have  been  emphasized.     There  are 
more  instances   of   suppressed  minorities   in   Europe 
to-day  than  ever  before. 

Under  such  a  conception  of  the  state  as  I  have  sug- 
gested, Slovakia  might  well  become  an  independent 
state  entity.  If  there  is  remaining  territory  where 
Germans  are  in  very  large  majority,  that  portion  of 


220  WHAT  NEXT  IN  EUROPE? 

the  country  might  be  made  into  a  German  speaking 
state.  The  same  idea  might  be  applied  wherever  there 
are  important  racial  minorities  geographically  segre- 
gated. Such  action,  however,  would  be  fatal  unless 
the  states  are  federated  in  a  way  that  properly  gov- 
erns their  international  relations. 

Under  a  scheme  of  an  ideal  Europe  we  might  con- 
ceivably have  a  far  larger  number  of  states  than  now 
exist.  It  might  be  possible  to  make  such  divisions  so 
that  no  state  would  embrace  solid  blocks  of  antago- 
nistic nationalities.  Each  state  could  completely  man- 
age its  domestic  affairs,  but  in  all  of  its  external  re- 
lations it  would  need  to  be  subject  to  the  restrictions 
of  a  federal  constitution. 

Obviously,  a  political  union  of  this  sort  is  for  the 
present  entirely  inconceivable.  The  approach  to  it 
must  be  made  gradually,  and  perhaps  can  be  attained 
only  after  a  generation  or  two  of  wise  education. 

It  seemed  to  me  that  excellent  political  results  might 
follow  the  establishment  throughout  Europe  of  an  in- 
ternational Federal  Reserve  Bank  similar  to  the  Fed- 
eral Reserve  system  in  the  United  States.  I  refer  to 
this  project  in  detail  elsewhere,  but  its  political  sig- 
nificance may  well  be  discussed  at  this  point.  It  would 
be  possible  to  set  up  in  Europe  an  international  bank, 
with  component  banks  located  in  the  capital  of  every 
European  state.  Such  a  bank,  if  it  had  the  power 
to  issue  a  common  currency  for  circulation  in  all,  or 


INFLUENCE  OF  LEAGUE  OF  NATIONS     221 

a  great  number,  of  European  states  would  be  a  unify- 
ing economic  influence.  Different  nationalities  would 
see  the  possibility  of  working  together  cooperatively. 
The  political  education  that  would  come  from  such 
an  undertaking  might  in  the  end  be  even  more  impor- 
tant than  the  economic  accomplishment,  although  I 
believe  that  would  be  very  great.  Since  the  funda- 
mental trouble  in  Europe  lies  in  a  situation  that  ap- 
proximates international  anarchy,  any  influence  tend- 
ing to  turn  that  anarchy  into  order  would  be  of  the 
utmost  importance. 

Up  to  the  present,  the  single  agency  that  is  working 
to  accomplish  this  end  is  the  League  of  Nations.  It 
merits  respectful  and  sympathetic  consideration.  Its 
work  has  already  been  beneficial,  though  the  task 
ahead  of  it  is  so  great  that  by  comparison  its  present 
accomplishments  seem  meager.  It  needs  our  advice 
and  cooperation.  The  Covenant  could  be  modified  to 
meet  any  reasonable  objections  which  we  may  raise. 
If  we  are  not  prepared  to  join  the  League, — and  obvi- 
ously we  are  not, — is  it  not  our  duty  to  find  some  way 
in  which  the  great  moral  forces  and  political  prestige 
of  the  United  States  can  be  made  useful  in  putting 
a  dangerously  distraught  world  in  order? 


CHAPTER  XIV 
THE  ATTITUDE  OF  LABOR 

THE  attitude  of  labor  as  it  faces  the  new  problems 
of  peace  must  be  made  an  integral  part  of  any  inves- 
tigation of  the  economic  situation  of  Europe.  To 
neglect  it  and  to  study  the  economic  situation  of  Eu- 
rope only  through  the  eyes  of  Government  ministers, 
financiers  and  industrial  leaders  would  be  to  get  but 
half  the  picture.  Next  in  importance  to  knowing  the 
aims  and  aspirations  of  governments,  is  to  know  the 
aims  and  aspirations  of  labor  unions. 

Generally  speaking,  labor  is  much  more  highly  or- 
ganized in  Europe  than  it  is  in  America.  Its  programs 
are  more  completely  developed  and  there  is  a  greater 
unanimity  among  the  laboring  classes  in  backing  them. 
It  is  undoubtedly  true,  as  any  one  with  wide  familiarity 
with  European  labor  leaders  can  testify,  that  the  grasp 
which  they  have  upon  the  principles  of  economics  that 
are  involved  in  the  labor  question  is  far  firmer  than 
is  generally  the  case  with  our  American  leaders.  Some 
of  the  best  economists  in  Europe  are  labor  leaders. 
I  think  that  some  of  the  most  statesmanlike  minds 
may  be  found  among  labor  unionists.  It  becomes  of 
great  importance,  therefore,  if  one  is  to  attempt  a 

222 


THE  ATTITUDE  OF  LABOR  223 

prognosis  of  European  affairs  to  know  in  what  direc- 
tion union  labor  sentiment  is  facing. 

The  Great  War,  and  still  more,  its  after  effects  and 
developments,  have  brought  about  a  highly  important 
fundamental  change  in  the  general  attitude  of  Eu- 
ropean organized  labor.  It  is  a  change  significant 
of  great  promise.  I  would  set  it  down  almost  at  the 
head  of  the  list  of  hopeful  and  promising  indications 
in  the  disturbed  European  outlook. 

In  latter  pre-war  days,  the  attitude  of  organized 
labor,  broadly  speaking,  was  clearly  revolutionary. 
The  doctrines  of  Marx  and  later  Communists  had 
gripped  the  minds  of  those  who  shaped  organized 
labor  policy.  There  was  general  discouragement  in 
regard  to  the  whole  capitalistic  system.  Its  selfish- 
ness was  emphasized,  the  inequalities  of  life  under  it 
were  magnified.  The  failure  of  labor  to  obtain  an 
adequate  voice  in  industry,  or  at  least  a  voice  which 
spoke  with  the  authority  that  labor  thought  it  should 
have,  had  made  labor  cynical  in  regard  to  the  benevo- 
lent protestations  of  capital.  There  was  an  idealistic 
belief  that  a  better  system  could  be  inaugurated  than 
the  faulty,  greedy,  intolerant  control  which  was  its 
conception  of  the  capitalistic  organization  of  society. 
In  their  condemnation  of  the  old  order,  this  idealism 
was  not  always  expressed.  Men  came  to  feel  that 
they  had  been  defrauded  of  their  just  participation  in 
the  fruits  of  their  industry  and  viewed  with  exag- 


224  WHAT  NEXT  IN  EUROPE? 

gerated  emphasis  the  material  inequalities  in  the  pos- 
sessions of  society.  They  looked  with  covetousness 
on  the  accumulations  that  rested  in  hands  which  they 
felt  had  contributed  inadequately  to  the  creation  of 
the  wealth  they  held. 

The  underlying  aim  of  organized  labor  was,  there- 
fore, revolutionary.  Labor  had  ceased  to  believe  that 
it  could  wrest  from  the  capitalistic  order  concessions 
that  would  satisfy  its  sense  of  justice.  Sabotage, 
rather  than  cooperation,  came  into  favor.  The 
ca'canny  policy  of  doing  as  little  as  one  could  seemed 
to  many  a  sort  of  class  altruism  which  would  multiply 
the  number  of  jobs.  Restrictive  union  rules  govern- 
ing the  conduct  of  industry  multiplied,  until  they  be- 
came a  web  made  up  of  innumerable  strands,  holding 
back  and  paralyzing  industrial  production.  Just  prior 
to  the  outbreak  of  the  war,  if  union  labor  had  had  its 
way,  the  capitalistic  order  would  have  given  place  to 
a  greatly  extended  system  of  State  socialism,  although 
the  more  radical  elements  would  not  have  been  satis- 
fied even  with  that  change. 

Then  came  the  war,  with  its  limitless  demand  upon 
industry.  Labor  found  itself  overnight  in  so  com- 
manding a  position  that  it  could  dictate  terms  and 
wages.  Under  the  influence  of  the  law  of  supply  and 
demand,  aided  by  a  depreciated  currency  and  rapidly 
rising  price  levels,  wages  were  increased  with  a  ra- 
pidity that  had  never  been  known  before.  But  these 


THE  ATTITUDE  OF  LABOR  225 

easily  won  wage  concessions  failed  to  increase  pro- 
duction to  the  point  where  it  could  meet  the  limitless 
demands  of  the  military  machines.  The  national 
exigencies  which  had  brought  about  these  startlingly 
frequent  wage  revisions  demanded  that  the  entangling 
web  of  union  restrictive  rules  should  not  interfere 
with  the  production  that  was  vitally  necessary.  Union 
labor  had  to  give  way  in  that  respect.  The  ranks  of 
skilled  labor  were  diluted  by  unskilled  hands  who  were 
rapidly  trained  to  operate  automatic  machines.  An 
endless  list  of  restrictive  shop  rules  was  wiped  out. 
Labor  worked  harder,  produced  more,  and  on  the 
whole  was  better  recompensed  than  ever  before. 

Then  came  the  great  drama  in  Russia.  With  amaz- 
ing ease,  the  whole  capitalistic  order  in  a  nation  of 
160,000,000  people  was  wiped  out  and  in  its  place 
an  almost  complete  Communistic  social  experiment 
was  set  up. 

Labor  looked  on  with  breathless  interest.  Was  it 
possible  that  one  of  the  indirect  results  of  the  war 
was  going  to  be  a  world  millennium?  Would  all  the 
injustices  of  the  old  capitalistic  order  be  swept  away 
and  a  new  world  emerge,  built  on  the  ideal  principles 
of  Communism?  There  was  hardly  time  for  ardent 
radicals  to  sketch  in  their  own  minds  the  barest  out- 
line of  such  a  picture  before  it  was  seen  that  sane  men 
must  view  Russia's  great  experiment  with  reserva- 
tions. People  became  dimly  aware  that  the  old  autoc- 


226  WHAT  NEXT  IN  EUROPE? 

racy  had  given  place  to  one  that  was  more  extreme 
and  that  every  semblance  of  liberty  had  disappeared. 

A  curtain  was  drawn  tightly  over  the  experience 
of  Russia,  but  here  and  there  were  the  slightest  open- 
ings that  permitted  views  which  showed  that  the  new 
society  was  far  from  an  ideal  one.  There  were  a 
few  ardent  Communists  who  obtained  some  insight 
into  the  way  the  new  order  was  working  and  a  ques- 
tion rose  in  their  minds  with  startling  insistence. 
They  asked  whether,  after  all,  life  could  be  tolerable 
in  a  community  that  left  nothing  to  individual  initia- 
tive. They  saw  in  Russia  the  whole  economic  life 
directed  by  an  autocratic  hand.  They  saw  that  this 
Communistic  experiment  rested  on  a  more  complete 
autocracy  than  either  the  modern  or  the  ancient  world 
had  ever  witnessed. 

Even  radical  union  labor  looked  askance  at  the  idea 
of  a  Bolshevized  world.  Communism  in  practice  pre- 
sented some  very  unpleasant  conclusions.  Those  who 
had  believed  that  Communism  might  turn  the  earth 
into  a  Garden  of  Eden  discovered  that  it  was  indeed 
true  that  Russia  was  taking  on  some  of  its  character- 
istics, characteristics  that  promised  to  leave  its  in- 
habitants unclothed  and  without  any  of  the  machinery 
of  production  and  distribution.  In  this  modern  Eden, 
unless  one's  life  happened  to  be  cast  unddr  a  fig  tree, 
his  lot  promised  to  be  one  of  nakedness  and  hunger. 
There  was  a  rapid  revision  of  old  dreams  about  a 


THE  ATTITUDE  OF  LABOR  227 

Communistic  state.  The  adherents  of  the  general 
theory  of  Communism  began  to  fall  away.  Neverthe- 
less the  radicals  continued  to  insist  that  the  hardships 
which  every  one  admitted  Russia  was  experiencing 
were  not  due  to  the  new  economic  order  but  to  a 
wicked  combination  of  western  nations  to  boycott  Rus- 
sia and  starve  her  into  abandoning  her  Communistic 
ideals. 

The  progress  of  the  experiment  was  too  unprom- 
ising, however,  for  any  one  of  sanity  to  wish  to  see  it 
made  world-wide  until  more  evidence  of  its  value 
accumulated.  All  classes  were  deeply  alarmed  by  the 
activities  of  the  Bolshevists  in  spreading  their  propa- 
ganda and  by  the  vast  machinery  which  they  organized 
to  overturn  existing  governments  and  create  revolu- 
tions which  would  force  other  people  to  adopt  their 
theories. 

The  experiment  seemed  to  be  leading  the  Russian 
nation  into  the  deepest  human  misery  that  any  people 
had  ever  experienced.  It  was  seen  that  there  might 
be  adventitious  causes  for  its  failure  and  that  the  true 
picture  was  perhaps  not  as  black  as  the  few  observers 
who  were  able  to  get  a  glimpse  of  it  had  reported. 
But  in  any  event  it  was  obvious  that  Russia  did  not 
look  as  if  a  millennium  had  arrived.  Adherents  to  the 
principles  of  Communism  were  shaken.  Labor  began 
to  examine  anew  the  fundamental  advantages  and  dis- 
advantages of  capitalism  and  communism.  That 


228  WHAT  NEXT  IN  EUROPE? 

examination  has  resulted  in  a  marked  change  in  the 
views  of  unionist  labor  in  Europe. 

I  was  told  by  some  of  the  chief  labor  leaders  of 
Europe  that  in  America,  even  among  the  greatest 
heads  of  our  labor  movement,  we  have  failed  as  yet 
to  understand  the  profound  change  which  has  taken 
place  in  the  attitude  of  European  union  labor.  The 
highest  authorities  declare  that  it  is  now  no  longer 
revolutionary.  There  has  been  a  distinct  swing  away 
from  the  left  that  amounts  to  a  general  abandonment 
of  their  belief  in  the  practicability  of  Communism  in 
the  present  state  of  society  and  of  human  nature. 
The  fixed  belief  that  it  was  useless  to  attempt  to  re- 
form the  capitalistic  order  in  such  a  way  that  labor 
would  gain  what  it  felt  was  its  due  began  to  crumble. 

The  labor  mind  turned  in  a  new  direction.  It  aban- 
doned idealistic  theories  and  vigorously  took  up  the 
consideration  of  what  might  be  accomplished  in  a  capi- 
talistic regime  in  which  labor  had  a  far  greater  share  in 
its  control.  During  the  war  it  had  been  demonstrated 
that  it  was  possible  for  labor  to  have  a  more  coopera- 
tive attitude  and  a  greater  intellectual  participation  in 
industrial  direction.  Labor  began  to  place  greater 
emphasis  on  the  shortcomings  of  capital  in  its  conduct 
of  industry  rather  than  in  its  treatment  of  labor.  It 
began  to  study  and  emphasize  the  cost  to  capital  and 
labor  alike  of  the  blind  and  ignorant  mistakes  which 
capital  was  making  in  failing  to  adopt  the  most  scien- 


THE  ATTITUDE  OF  LABOR  229 

tific  means  of  handling  the  problems  of  production. 

With  a  clearness  with  which  it  never  viewed  the 
subject  before,  labor  has  come  to  see  that  its  recom- 
pense in  the  end  can  only  come  out  of  production. 
No  matter  what  success  labor  may  have  in  revising 
its  own  proportion  of  the  total,  the  amount  produced 
is,  after  all,  the  governing  factor  which  fixes  the  maxi- 
mum possible  reward  for  both  capital  and  labor.  The 
relative  division  between  them  may  be  changed,  but 
the  combined  rewards  of  capital  and  labor  cannot  be 
greater  than  the  total  of  goods  produced.  This  is  an 
economic  truism;  the  interesting  thing  is  that  labor 
understands  it. 

As  I  have  said,  the  new  attitude  of  labor  appears 
to  me  to  be  perhaps  the  most  promising  element  in  the 
European  outlook.  I  do  not  mean  in  the  least  that 
the  swing  of  labor  sentiment  has  been  reactionary. 
Some  of  the  results  of  Bolshevism  have  appalled  it. 
There  has  been  a  sharp  awakening  from  Communistic 
dreams;  programs  of  revolution  against  capitalism 
have  been  torn  up.  Labor  has  a  quite  different  pro- 
gram in  its  mind  than  reaction.  It  has  laid  aside  the 
idealized  conception  of  a  new  order  of  society  but  in 
its  place  it  is  building  up  another  ideal. 

This  new  vision  of  labor,  which  seems  to  me  to  be 
of  such  hopeful  augury,  is  not  one  that  capital  will 
look  upon  complacently  in  the  hope  that  it  will  free 
its  future  road  from  obstacles.  I  am  not  sure  that  a 


230  WHAT  NEXT  IN  EUROPE? 

good  many  old-time  capitalists  will  not  feel  that  the 
new  vision  of  labor  is  almost  as  dangerous  as  its  old 
dream  of  revolution. 

Labor  criticizes  the  capitalistic  system  to-day,  not 
so  much  in  its  fundamental  principles  as  in  the  lack 
of  intelligence  with  which  it  has  administered  its  af- 
fairs. It  criticizes  the  management  by  capitalists  but 
accepts  capitalism,  and  is  profoundly  convinced  that 
out  of  its  own  ranks  may  come  a  great  contribution 
toward  more  able  administration.  This  means,  of 
course,  that  labor  wants  a  larger  voice  in  the  direc- 
tion of  industry. 

In  the  numerous  conversations  which  I  have  had 
with  labor  leaders  throughout  the  Continent,  I  have 
been  universally  well  impressed  with  the  grasp  of  eco- 
nomic principles  which  these  men  have  shown  and 
with  their  intellectual  ability  to  argue  their  case. 
When  I  compared  their  minds  with  the  frozen  minds 
of  occasional  old-time  reactionary  industrial  indi- 
vidualists, I  could  not  see  many  grave  dangers  in  the 
impending  struggle  in  which  labor  will  try  to  secure 
greater  responsibility  in  the  capitalistic  order  of  so- 
ciety. I  am  quite  free  to  admit  that  the  views  of  the 
best  of  the  labor  leaders  are  not  representative  of  the 
average.  There  is  still  a  good  deal  of  blind  class- 
selfishness  in  the  ranks  of  labor  and  a  belief  that  it 
can  add  permanently  to  what  it  has  by  taking  the  pos- 
sessions of  those  who  now  hold  them. 


THE  ATTITUDE  OF  LABOR  231 

It  will  long  remain  a  question  whether  or  not  the 
most  intelligent  leaders  of  labor  will  really  succeed  in 
shaping  and  controlling  the  attitude  and  policy  of  labor 
as  a  whole.  Politicians  have  always  had  to  sacrifice 
their  own  principles  to  what  they  believed  to  be  the 
sentiment  of  the  masses  and  the  directing  of  labor 
union  policies  is  but  another  form  of  politics.  If 
labor  leaders  are  to  lead,  they  must  first  retain  their 
positions;  to  do  that  they  cannot  get  too  far  ahead 
of  the  average  sentiment  of  their  constituents.  It 
would  be  a  mistake  to  predict  from  the  attitude  of  a 
few  liberal  men  in  what  direction  and  how  far  the 
great  mass  of  labor  sentiment  will  go. 

If  the  sound  statesmanship  and  the  practical  eco- 
nomic knowledge  of  government  office  holders  could 
be  measured  in  comparison  with  the  same  qualities  in 
the  best  of  the  leaders  of  union  labor  in  Europe,  I 
think  labor  would  not  suffer  greatly  by  the  comparison. 
It  must  be  admitted,  however,  that  the  labor  leaders 
have  a  difficult  problem  to  solve.  First,  they  must 
convince  society  that  their  aspirations  are  not  too 
radical  and  are  for  the  general  good  of  society,  and 
at  the  same  time  they  must  convince  their  followers 
that  the  leaders'  views  are  not  too  conservative  and 
that  they  are  sufficiently  centered  on  the  direct  inter- 
ests of  the  labor  class. 

I  found  myself  exceedingly  sympathetic  with  the 
aspirations  of  some  of  these  labor  leaders  toward  a 


232  WHAT  NEXT  IN  EUROPE? 

better  organized  economic  world.  No  one  but  the 
most  reactionary  of  capitalists  would  deny  that  there 
have  been  blind  shortcomings  in  capitalistic  manage- 
ment. That  there  are  unexplored  possibilities  in  a 
future  in  which  capital  and  labor  will  cooperate  har- 
moniously is  certain.  Labor  is  not  impressed  with  the 
idea  that  capital  has  a  monopoly  of  brains.  It  feels 
that  it  has  mind  as  well  as  muscle  to  put  into  the 
partnership,  which  will  so  help  to  increase  production 
that  the  share  of  both  sides  will  be  larger  than  it  has 
ever  been  in  the  past. 

Labor  resents  the  theory  that  wages  should  be  re- 
duced and  that  the  solution  lies  in  longer  hours  and 
lower  wages.  Instead  they  believe  that  it  lies  in  the 
direction  of  honest  cooperation  and  the  application  of 
more  intelligence  to  the  task  of  world  production. 

M.  Albert  Thomas,  head  of  the  International  Labor 
Bureau  of  the  League  of  Nations,  French  labor  leader, 
Member  of  the  Assembly,  and  late  Minister  of  the 
government,  is  one  of  the  foremost  exponents  of  this 
new  view  of  labor.  His  work  during  the  Avar  is  ac- 
knowledged by  every  one  to  have  been  an  important 
factor  in  the  vast  industrial  effort  which  coordinated 
the  workshops  of  France  with  the  effort  of  the  men 
in  the  trenches.  He  summed  up  for  me  what  he  re- 
garded as  the  immediate  program  of  European  union- 
ist labor.  First,  it  must  unify  labor  laws  as  to  hours, 
^working  conditions  and  child  labor.  Second,  there 


THE  ATTITUDE  OF  LABOR  233 

must  be  international  agreements  for  the  distribution 
of  raw  materials  between  the  nations;  this  was  par- 
ticularly necessary,  he  felt,  to  regulate  the  production 
and  distribution  of  coal.  Third,  improvement  in  trans- 
portation must  be  achieved  and  the  removal  of  the 
complex  network  of  interference  with  the  freedom  of 
international  communications. 

He  was  sharply  awake  to  the  danger  that  threatens 
highly  industrialized  nations  which  have  an  inadequate 
domestic  food  supply.  He  deprecated  national  tend- 
encies to  return  to  the  views  of  the  Physiocrats  to 
make  each  nation  wholly  self-contained.  He  pictured 
the  loss  to  civilization  if  nations  succeeded  in  being 
self-contained  economic  units,  instead  of  carrying  for- 
ward the  cooperative  effort  of  a  highly  organized  eco- 
nomic world  in  which  different  nations  specialized  in 
producing  those  things  for  which  they  were  best 
equipped  by  nature.  It  is  the  difference  between  a 
community  where  every  one  does  his  own  weaving, 
cobbling  and  food  raising  and  one  where  groups  of 
highly  specialized  craftsmen  exchange  their  skilled 
production  for  the  skilled  production  of  others. 

A  well  organized  economic  world  must  have  peace 
for  its  foundation.  Europe  is  sharply  awake  to  the 
horrors  that  come  upon  innocent  industrious  people, 
who  are  highly  specialized  in  their  craftsmanship,  and 
can  live  only  by  the  exchange  of  their  products,  if  the 
whole  machinery  of  international  exchange  is  thrown 


234  WHAT  NEXT  IN  EUROPE? 

into  confusion  by  war.  That  is  really  what  is  the 
matter  with  Europe.  The  most  intelligent  of  the 
labor  leaders  understand  the  necessity  for  peace.  In 
the  mind  of  organized  labor  to-day  there  is  a  new 
conception  of  war  with  which  future  statesmen  will 
have  to  reckon. 

Kings  could  once  declare  war;  yesterday  it  was  the 
duty  of  parliaments.  To-morrow  no  king  or  parlia- 
ment will  be  able  with  assurance  to  start  on  a  road 
of  hostilities  without  consulting  union  labor,  for  under 
modern  conditions,  warfare  is  carried  on  by  means  of 
the  product  of  the  work  shops.  A  war  that  meets  with 
the  disapproval  of  union  labor  might  fail  because  guns 
would  be  left  without  ammunition.  The  industrial 
effort  cannot  be  commanded  with  the  same  precision 
with  which  troops  are  moved  in  the  field.  The  work- 
men of  the  Krupp's  works,  for  example,  recently 
struck  when  an  order  for  the  construction  of  some 
heavy  guns  was  given.  They  would  not  go  on  with 
the  work  until  it  was  explained  to  them  that  the  guns 
were  for  coast  defense  in  a  South  American  country 
and  their  manufacture  in  Germany  had  been  approved 
by  the  Allies.  They  would  make  no  more  guns  for 
Europe. 

Union  labor  has  a  deep  conviction  that  it  can  play 
a  political  role  in  the  future  with  far  more  effect  than 
it  has  ever  been  able  to  obtain  in  parliaments.  If  it 
holds  up  its  hands  and  halts  production,  prime  mm- 


THE  ATTITUDE  OF  LABOR  235 

isters  must  reckon  with  its  opinions.  A  three  days' 
general  strike  in  Germany  changed  the  course  of  po- 
litical events. 

In  the  minds  of  many  capitalists  in  both  Europe  and 
America  there  is  at  the  present  time  the  firm  convic- 
tion that  "Labor  has  not  been  liquidated" — that  is  to 
say  that  the  high  wages  secured  during  the  war  have 
not  been  sufficiently  reduced.  Many  capitalistic  lead- 
ers believe  that  the  lowering  of  wages  is  the  most  im- 
portant element  in  reestablishing  production  and  the 
interchange  of  goods.  Undoubtedly  they  could  cite 
a  good  many  practical  illustrations  where  specific 
wage  scales  are  too  high  and  where  the  resistance  to 
wage  reduction  brings  about  an  almost  total  suspen- 
sion of  industrial  activity.  European  labor  believes, 
however,  that  the  present  wages  and  hours  can  be 
maintained  by  raising  production  by  means  of  intel- 
ligent administration  on  the  part  of  capital  to  a  point 
that  will  support  the  present  scale. 

Their  discussion  of  this  point  of  view  made  me 
think  of  a  story  President  McKinley  told  me  once  of 
an  incident  that  happened  at  the  Battle  of  Gettys- 
burg. In  those  days,  warfare  was  a  primitive  picture- 
book  sort  of  affair  compared  to  what  we  know  of  it 
to-day.  The  men  marched  forward  in  company  front, 
led  by  a  flag  bearer  who  was  in  this  case  a  youth 
whose  enthusiasm  was  greater  than  his  military  train- 
ing. In  the  heat  of  the  movement  he  got  well  ahead 


236  WHAT  NEXT  IN  EUROPE? 

of  his  company.  The  commander  shouted  savagely 
to  him :  "Bring  that  flag  back  to  the  line."  The  boy 
halted,  planted  the  flagstaff  firmly  in  the  ground  and 
replied:  "Bring  your  line  up  to  the  flag." 

Perhaps  that  illustrates  the  new  vision  of  union 
labor  in  Europe.  The  employers  shout :  "Bring  wages 
down  to  production."  Planting  its  flag  on  the  new 
ground,  labor  replies:  "Bring  production  up  to 
wages." 


CHAPTER  XV 
REPAIRING  EXCHANGES 

IN  a  previous  chapter,  we  have  examined  the  cur- 
rency disease.  After  a  visit  to  six  or  eight  of  the 
Central  European  countries,  I  came  to  the  conclusion 
that  there  was  no  curative  influence  at  work.  Ordi- 
narily, one  might  hope  that  time  will  bring  its  own 
remedy.  On  the  contrary,  it  seems  to  me  that  with- 
out material  aid  looking  toward  reconstruction,  time 
will  only  further  carry  down  the  various  currencies 
to  lower  levels.  It  seems  obvious  that  some  construc- 
tive plan  for  their  stabilization  must  be  put  into  prac- 
tice. 

I  have  spoken  of  the  difficulties,  the  impossible 
tasks,  that  face  the  finance  ministers  of  the  countries 
that  have  greatly  inflated  currencies.  When  the  Min- 
ister takes  up  his  portfolio,  he  knows  that  he  must 
reduce  expenses,  balance  his  budget  and  stop  printing 
further  issues  of  paper  money.  But  no  matter  how 
clear  sighted  he  may  be  or  how  much  advice  he  may 
wish  to  take  from  economists,  he  must  have  the  sup- 
port of  his  parliament.  He  finds  that  economics  do 
not  operate  in  a  vacuum  free  from  political  and  hu- 
man influences. 

237, 


238  WHAT  NEXT  IN  EUROPE? 

If  he  ruthlessly  reduces  expenses,  he  cannot  con- 
tinue to  hold  office.  In  these  countries,  there  has  been 
a  rotation  of  finance  ministers  who  have  given  up  in 
despair,  while  expenditures  go  on  almost  unchecked. 
If  he  attempts  to  increase  income,  he  finds  that  the 
taxes  that  are  collected  fail  to  come  up  to  estimates, 
sometimes  by  ludicrous  amounts.  He  cannot  get 
much  from  the  peasant  who  is  unused  to  heavy  taxa- 
tion and  who  has  political  power  and  a  large  measure 
of  passive  resistance.  If  the  taxes  fall  too  heavily  on 
men  of  wealth,  they  do  not  have  new  capital  for  pro- 
ductive enterprise.  Such  taxes  become  a  menace  to 
a  normal  economic  life.  When  taxes  become  prac- 
tically confiscatory,  the  business  man  spends  almost 
as  much  time  in  his  lawyer's  office  as  he  does  at  his 
desk,  finding  ways  to  avoid  tax  payments  which,  if  he 
made  them,  would  soon  result  in  his  ceasing  to  be  a 
business  man. 

There  is  a  long  interval  between  the  formulation 
of  a  financial  program  by  a  finance  minister  and  the 
time  when  taxes  are  actually  brought  into  the  treasury, 
an  interval  of  at  least  six  to  twelve  months.  During 
that  time,  a  government  must  run,  bills  must  be  paid, 
and  if  loans  cannot  be  made  the  only  alternative  is 
the  issuance  of  more  paper.  When  the  treasury  finally 
receives  the  taxes,  there  has  been  such  a  further  de- 
preciation in  the  value  of  the  currency  in  which  they 
are  paid  that  every  calculation  is  wrong.  If  the  coun- 


REPAIRING  EXCHANGES  239 

try  is  giving  a  food  subsidy,  for  example,  the  deficit 
has  obviously  been  increased  because  the  cost  in  paper 
money  of  buying  food  in'  foreign  markets  increases 
as  the  value  of  the  paper  money  declines.  Wages 
must  be  constantly  raised.  Every  expense  of  govern- 
ment increases  when  expenses  are  measured  in  depre- 
ciating money. 

So  at  the  end  of  the  cycle,  the  finance  minister's 
hopeful  budget  is  as  badly  out  of  balance  as  was  the 
preceding  one.  The  country's  finances  have  made  one 
more  turn  down  that  spiral  staircase  which  they  are 
all  descending,  Poland  and  Austria  in  the  forefront, 
but  with  half  a  dozen  other  nations  treading  on  their 
heels. 

This  is  why  I  believe  there  is  nothing  curative  work- 
ing in  the  situation,  and  that  there  must  be  some  out- 
side assistance  to  these  nations  which  are  now  in  this 
currency  vortex,  if  they  are  to  be  saved  from  com- 
plete currency  demoralization  leading  them  into  a 
financial  dark  age  where  trade  will  be  carried  on  by 
barter. 

In  any  attempt  to  find  a  cure  by  creating  a  feasible 
new  currency  designed  to  take  the  place  of  the  depre- 
ciated paper  notes  of  to-day,  it  is  obvious  that  the  new 
currency  must  be  divorced  from  the  unrestricted  print- 
ing press.  Poland,  for  example,  is  considering  a  de- 
valuation of  its  currency  and  the  possibility  of  issuing 
a  new  currency  with  some  other  title  at  a  ratio  of 


24o  WHAT  NEXT  IN  EUROPE? 

about  one  to  a  hundred,  retiring  the  old  paper  with 
the  new  notes.  This  would  result  in  Poland's  having 
a  new  currency,  but  the  old  printing  press  would  still 
remain.  There  would  still  be  the  budget  deficit  and 
the  country  would  inevitably  follow  the  same  disas- 
trous road  of  inflation  with  the  new  currency. 

It  will  be  seen  that  in  those  countries  where  cur- 
rency depreciation  has  reached  an  extreme  point  it  is 
necessary  to  promote  the  issue  of  a  new  currency  under 
some  authority  over  which  the  government  has  no  di- 
rect control.  The  new  currency  must  not  be  aug- 
mented by  government  printing  and  must  be  so  related 
to  gold  and  to  the  commerce  of  the  country  that  its 
volume  will  depend  upon  more  wholesome  factors 
than  the  urgency  of  the  government's  demands  for 
credit. 

I  was  asked  by  practically  every  finance  minister 
of  Central  Europe  to  make  some  suggestion  for  creat- 
ing a  starting  point  at  least  from  which  they  could 
get  back  to  a  sane  currency  situation.  It  was  not  until 
after  I  had  visited  nearly  every  country  in  Europe  and 
had  realized  the  similarity  of  the  difficulties  that  most 
of  these  governments  are  facing  that  I  formulated 
a  tentative  plan  which  might  meet  the  situation. 

Whether  this  plan  proves  to  be  generally  acceptable 
or  not,  I  have  a  good  deal  of  confidence  in  stating  that 
any  proposal  that  is  successful  in  averting  the  com- 


REPAIRING  EXCHANGES  241 

plete  wreck  of  currencies  in  a  number  of  nations  must 
be  formulated  in  the  light  of  the  two  principles  I  have 
laid  down.  First,  that  in  the  present  situation  there  is 
nothing  curative  at  work,  that  the  disease  is  a  progres- 
sive one  and  that  there  must  be  outside  help.  Second, 
that  a  currency  must  be  created  that  cannot  be  de- 
preciated by  the  unrestricted  use  of  the  government 
printing  press. 

I  am  familiar  with  and  profoundly  believe  in  the 
principles  of  the  American  Federal  Reserve  banking 
system.  It  was  not  unnatural  that  in  reflecting  on  the 
means  of  rescuing  these  nations  from  further  financial 
collapse,  I  should  consider  the  application  of  princi- 
ples which  have  proved  so  efficacious  in  our  own 
financial  life  to  the  extremely  distraught  situation  that 
I  was  viewing. 

I  was  specially  invited  to  present  my  suggestion  to 
the  Porta  Rosa  Conference,  a  Conference  of  the  so- 
called  succession  states  of  the  old  Hapsburg  Empire, 
which  met  at  Porta  Rosa,  Italy.  I  wrote  at  Warsaw 
a  plan  which  was  presented  at  this  Conference  a  few 
days  later. 

The  suggestion  made  to  the  Porta  Rosa  Conference 
was  for  the  organization  of  what  might  be  termed  a 
Gold  Reserve  Bank  for  the  United  States  of  Europe. 
I  will  present  it  in  detail  at  the  risk  of  boring  the 
average  reader,  because  it  is  only  by  giving  it  as  a 


242  WHAT  NEXT  IN  EUROPE? 

whole  that  the  questions  and  difficulties  aroused  in 
one's  mind  by  the  consideration  of  so  elaborate  a 
scheme  can  be  answered. 

The  proposal  was  the  organization  of  a  banking 
corporation  with  a  paid  in  capital  of  gold.  This  bank 
might  be  organized  as  a  "super  corporation,"  that  is 
to  say,  it  would  be  better  possibly  if  it  were  not  or- 
ganized under  the  laws  of  any  particular  country.  Its 
corporate  existence  might  be  created  through  the 
League  of  Nations  or  through  some  other  international 
body. 

The  suggested  capital  of  one  billion  dollars  would 
be  necessary  only  when  the  new  organization  operated 
in  most  of  the  European  states.  At  the  start  the 
capital  would  be  much  smaller.  The  stock  would  be 
divided  into  shares  of  one  hundred  dollars  each.  Sub- 
scription to  these  shares  would  be  open  to  any  one 
able  to  subscribe  and  pay  in  gold.  As  America  at  the 
present  time  holds  the  predominating  stock  of  free 
gold,  it  is  presumable  that  the  bulk  of  the  initial  sub- 
scriptions would  come  from  that  country.  It  is  not 
proposed,  however,  that  the  stock  should  be  perma- 
nently lodged  in  America  and  provisions  are  made 
under  which  all  of  it  might  in  the  future  be  purchased 
by  Europeans.  With  that  in  view,  the  stock  would  be 
issued  in  two  classes.  The  stock  subscribed  for  by 
Americans  would  be  designated  Stock  "A."  That 


REPAIRING  EXCHANGES  243 

subscribed  for  by  Europeans  would  be  designated 
Stock  "B."  The  two  classes  of  stocks  would  be  iden- 
tical in  all  respects  except  that  Class  "A"  Stock  would 
be  subject  to  retirement  by  call  at  say  one  hundred 
and  twenty. 

The  affairs  of  the  corporation  would  be  controlled 
by  a  court  composed  of  nine  Trustees,  who  would  be 
named  in  the  articles  of  organization,  five  of  these  to 
be  Americans  and  four  to  be  Europeans.  There  would 
also  be  nine  alternate  Trustees,  similarly  divided  be- 
tween America  and  Europe,  any  one  of  whom  might 
act  in  the  absence  or  disability  of  any  Trustee,  and 
when  so  acting,  would  have  all  the  powers  of  a  Trus- 
tee. The  aim  would  be  to  form  this  Board  of  Trustees 
of  men  of  the  very  highest  character  and  widest 
financial  experience;  men  who  would  rise  above  na- 
tional selfishness  and  from  whom  might  be  expected 
a  devotion  to  the  general  financial  rehabilitation  of 
Europe.  They  would  hold  the  position  for  life  or  until 
reaching  an  age  limit.  They  would  have  to  free  them- 
selves from  all  other  financial  connections.  In  the 
event  of  their  resignation,  they  should  agree  not  to 
engage  in  any  banking  or  financial  business  until  after 
an  interval  of  five  years. 

Vacancies  in  the  Board  of  Trustees  would  be  filled 
cooptatively,  that  is,  the  remaining  Trustees  would  elect 
a  new  Trustee  but  no  new  Trustee  should  be  elected 
who  was  not  approved  by  a  majority  of  the  individual 


244  WHAT  NEXT  IN  EUROPE? 

members  of  the  Federal  Reserve  Board  at  Wash- 
ington. The  provisions  in  regard  to  this  approval  by 
the  Federal  Reserve  Board  at  Washington,  as  well  as 
the  one  providing  that  five  of  the  nine  Trustees  should 
be  Americans,  would  lapse  when  conditions  that  will 
be  set  forth  later  had  been  met.  The  same  conditions 
would  apply  to  the  alternate  Trustees. 

The  Trustees  should  elect  a  governor  general  and 
a  deputy  governor  general  from  among  their  members. 
The  Governor  General  would  preside  at  their  meetings 
and  perform  such  duties  as  the  executive  head  of  the 
organization,  as  the  Trustees  might  designate.  The 
Governor  General  should  be  a  citizen  of  the  United 
States  until  the  charter  has  been  amended,  which  may 
take  place  when  seventy-five  percent  of  Class  "A" 
Stock  has  been  converted  into  Class  "B"  Stock. 

In  each  of  those  European  nations  which  invite 
the  establishment  of  a  branch  of  the  Gold  Reserve 
Bank  of  the  United  States  of  Europe,  a  banking  cor- 
poration would  be  organized  under  a  special  legisla- 
tive act.  These  several  banks  will  be  referred  to  here- 
after as  "Gold  Reserve  National  Banks."  The  capital 
of  each  would  be  in  gold  dollars  and  in  such  amount 
as  might  be  decided  on  by  the  Trustees.  All  the  capi- 
tal of  each  National  Bank  would  be  subscribed  and 
paid  for  out  of  funds  of  the  Gold  Reserve  Bank  of 
the  United  States  of  Europe. 

Each  Gold  Re-serve  National  Bank  would  be  man- 


REPAIRING  EXCHANGES  245 

aged  by  nine  Governors  who  would  be  appointed  and 
hold  office  at  the  pleasure  of  the  Trustees  of  the  cen- 
tral bank  who  will  be  referred  to  hereafter  briefly  as 
the  "Trustees."  Three  of  the  nine  Governors  of  each 
Gold  Reserve  National  Bank  should  be  experienced 
bankers.  Three  should  be  selected  from  among  men 
well  qualified  by  character  and  position  to  represent 
the  interests  of  the  general  public,  and  three  should 
be  selected  to  represent  specifically  the  interests  of 
agriculture,  industry  and  commerce.  The  nine  Gov- 
ernors of  these  banks  would  probably  be  citizens  of 
the  country  in  which  the  bank  is  located. 

The  Trustees  should  appoint  an  additional  Gov- 
ernor of  each  Gold  Reserve  National  Bank,  who 
would  be  the  Chairman  of  the  Board,  but  who  need 
not  be  a  citizen  of  the  country  where  the  bank  is  lo- 
cated. A  Deputy  who  would  be  a  citizen  of  the  coun- 
try would  be  appointed  to  act  in  the  absence  or  in- 
capacity of  the  Chairman. 

The  Board  of  Governors  of  each  Gold  Reserve  Na- 
tional Bank  would  elect  from  their  members  a  Governor 
General  and  a  Deputy  Governor  General  as  the  chief 
executive  officers  in  whom  would  repose  such  powers 
as  the  Board  of  Governors  might  delegate  to  them. 

The  prerequisites  to  the  establishment  in  any  nation 
of  a  Gold  Reserve  National  Bank  should  be: 

First — An  official  invitation  by  the  Government  of  the 
country  concerned  to  establish  such  a  bank. 


246  WHAT  NEXT  IN  EUROPE? 

Second — The  furnishing,  free  of  all  expense,  by  the 
Government  of  an  adequate  building,  equipped  for  the 
purposes  of  the  business;  this  building  and  the  ground 
upon  which  it  stands  to  be  given  the  same  ex-territorial 
rights  as  those  enjoyed  by  a  foreign  embassy. 

Third — An  assurance  that  there  will  in  the  future  be 
no  legislation  enacted  to  hamper  the  free  circulation  of 
the  notes  of  the  Gold  Reserve  Bank  of  the  United  States 
of  Europe.  There  must  be  further  assurance  of  no  leg- 
islation against  the  free  exportation  and  importation  of 
these  notes,  against  the  making  of  contracts  payable  in 
these  notes;  or  against  the  opening  of  deposit  accounts 
in  these  notes  in  other  banks. 

In  the  making  of  loans  and  the  receipt  of  deposits 
each  Gold  Reserve  National  Bank  would  deal  solely 
with  incorporated  commercial  banks  and  not  with  indi- 
viduals. It  would  make  loans  only  against  collateral 
to  an  amount  equal  to  perhaps  150  percent  of  the  loan 
made.  The  collateral  must  be  short  term  commercial 
paper,  having  not  over  sixty  days  to  run,  or  at  most 
not  over  ninety  days,  arising  out  of  legitimate  com- 
mercial transactions  and  strictly  of  a  character  known 
as  "self-liquidating"  paper. 

"Self-liquidating"  paper  must  be  sharply  differen- 
tiated from  advances  of  capital.  To  illustrate:  The 
ideal  type  of  "self-liquidating"  paper  is  a  loan  against 
produce  during  the  period  of  its  transport  from  the 
grower  to  the  consumer,  or  a  loan  against  raw  mate- 
rial during  the  process  of  manufacture  and  until  the 


REPAIRING  EXCHANGES  247 

manufactured  goods  are  sold.  It  may  also  be  a  loan 
against  merchandise  to  be  paid  when  the  merchant 
sells  the  goods  bought  with  the  proceeds  of  the  loan. 

No  loans  would  be  made  against  stocks,  bonds  or 
mortgage  collaterals  or  against  government  bonds. 
But  if  a  government  was  engaged  in  self-liquidating 
commercial  operations,  such  as  the  purchase  of  grain 
for  resale  to  its  citizens,  the  paper  arising  out  of  such 
a  transaction,  bearing  the  endorsement  of  a  bank, 
might  be  rediscounted  the  same  as  other  commercial 
paper,  if  the  transaction  was  on  a  "self -liquidating" 
basis. 

A  bank  wishing  to  rediscount  commercial  paper  at 
the  Gold  Reserve  National  Bank  would  have  to  fur- 
nish a  satisfactory  statement  of  its  condition  and  to 
submit  to  periodical  examination  by  accountants  rep- 
resenting the  Trustees.  It  must  also  give  satisfactory 
information  regarding  the  credit  of  corporations, 
firms,  or  individuals  whose  paper  was  rediscounted 
and  satisfactory  evidence  that  this  rediscounted  paper 
arose  out  of  legitimate  commercial  transactions. 

The  Trustees  would  have  power  to  direct  any  Gold 
Reserve  National  Bank  to  loan  to  any  other  Gold  Re- 
serve National  Bank  against  a  collateral  deposit  of 
endorsed  commercial  paper.  The  Gold  Reserve  Bank 
of  the  United  States  of  Europe  would  have  power  to 
issue  circulating  dollar  notes  in  such  form  and  de- 
nominations as  the  Trustees  should  designate.  It 


248  WHAT  NEXT  IN  EUROPE? 

could  make  advances  of  these  notes  to  the  various  Na- 
tional Banks  against  deposits  of  gold  or  of  gold  and 
endorsed  commercial  paper.  The  Gold  Reserve  Bank 
of  the  United  States  of  Europe  must  always  receive 
a  minimum  of  not  less  than  twenty  percent  of  gold 
against  advances  of  circulating  notes,  and  must  keep 
a  reserve  of  at  least  twenty  percent  gold  back  of  all 
outstanding  notes. 

The  rate  of  discount  fixed  by  the  Governors  of  the 
various  Gold  Reserve  National  Banks  must  have  the 
approval  of  the  Trustees.  It  would  vary  at  the  dif- 
ferent banks  and  a  progressively  increasing  rate  might 
be  charged  by  the  Gold  Reserve  National  Bank  to 
banks  borrowing  from  it,  as  the  amount  of  their  bor- 
rowings increased  in  proportion  to  their  capital. 

The  earnings  of  the  Gold  Reserve  National  Banks 
might  be  distributed  in  the  following  manner: 

A  dividend  of  eight  percent  should  be  paid  to  the 
Gold  Reserve  Bank  of  the  United  States  of  Europe, 
upon  the  stock  of  the  Gold  Reserve  National  Bank, 
held  by  it.  Three-quarters  of  the  remaining  earnings 
should  be  allowed  to  accumulate  as  a  surplus  until  the 
surplus  amounts  to  twenty  percent  of  the  capital  of 
the  Gold  Reserve  National  Bank.  After  that,  one- 
fourth  of  the  earnings  would  continue  to  be  accumu- 
lated as  surplus,  and  one-half  would  be  paid  to  the 
Government  of  the  country  in  which  the  bank  is  lo- 
cated in  lieu  of  all  taxes  of  every  description  upon  the 


REPAIRING  EXCHANGES  249 

bank  or  its  circulation.  When  the  surplus  of  the  Gold 
Reserve  National  Bank  reaches  fifty  percent  of  its 
capital,  the  full  three-quarters  of  the  earnings  referred 
to  above  would  go  to  the  Government  of  the  country 
in  which  the  bank  is  located,  so  long  as  the  bank's 
surplus  is  maintained  at  fifty  percent  of  its  capital. 
The  remaining  one-quarter  of  the  earnings,  after  the 
regular  dividend  of  eight  percent  has  been  paid  upon 
the  stock,  would  be  declared  as  an  extra  dividend  to 
be  paid  to  the  Gold  Reserve  Bank  of  the  United 
States  of  Europe. 

All  stockholders  of  the  Gold  Reserve  Bank  of  the 
United  States  of  Europe  would  be  paid  a  regular  divi- 
dend of  eight  percent  if  earned,  and  in  addition  an 
extra  dividend  amounting  in  the  aggregate  to  the  total 
extra  dividends  received  from  the  several  Gold  Re- 
serve National  Banks.  All  the  expenses  of  adminis- 
tration of  the  Gold  Reserve  Bank  of  the  United  States 
of  Europe,  including  the  salaries  of  the  Trustees,  the 
cost  of  printing  and  circulation  of  its  notes,  etc., 
would  be  apportioned  among  the  several  Gold  Reserve 
National  Banks  and  paid  by  them  as  operating  ex- 
penses. 

It  is  to  be  presumed  that  the  bulk  of  the  initial 
subscriptions  to  the  stock  of  the  Gold  Reserve  Bank 
of  the  United  States  of  Europe  will  come  from 
America.  It  is  not  the  design  to  perpetuate  the  Ameri- 
can participation  or  control  beyond  the  time  when 


250  WHAT  NEXT  IN  EUROPE? 

the  European  nations  are  financially  reconstructed, 
and  when  they  may  desire  to  have  the  stock  owned 
either  by  their  governments  or  their  citizens.  It  would 
be  provided,  therefore,  that  all  stock  initially  sub- 
scribed for  by  Americans  and  known  as  Class  "A" 
Stock  would  be  callable  by  lot  at  one  hundred  and 
twenty.  Whenever  the  Government  of  a  country 
in  which  a  Gold  Reserve  National  Bank  was  located 
notified  the  Trustees  that  it  desired  to  have  delivered 
to  it  blocks  of  stock  of  ten  million  dollars  or  multi- 
ples thereof,  the  Trustees  would  call  in  that  amount 
of  Class  "A"  Stock  by  lot.  The  holders  of  it  should 
then  surrender  it  at  one  hundred  and  twenty  dollars 
per  share  and  accrued  dividends.  The  Class  "A"  Stock 
would  have  no  preference  of  any  kind  over  the  other 
stock  but  would  be  subject  to  the  disability  that  it  may 
be  called  at  one  hundred  and  twenty  and  re-issued 
as  Class  "B"  Stock.  This  disability  would  not  be 
attached  to  Class  "B"  Stock  which  would  not  be 
callable.  The  amount  of  stock  which  any  govern- 
ment might  ask  to  have  sold  to  it  or  its  citizens  in 
this  way  may  not  be  a  greater  percentage  of  all  Class 
"A"  Stock  than  the  ratio  of  the  capital  of  the  Gold 
Reserve  National  Bank  located  in  the  country  in  ques- 
tion, to  total  capital  of  the  Gold  Reserve  Bank  of  the 
United  States  of  Europe. 

Whenever  seventy-five  percent  of   the  Class   "A" 
Stock  has  been  converted  into  Class  "B"  Stock,  the 


REPAIRING  EXCHANGES  251 

provision  regarding  the  five  American  Trustees  and 
the  provision  regarding  the  approval  of  new  Trustees 
by  a  majority  of  the  individual  members  of  the  Fed- 
eral Reserve  Board  of  the  United  States,  should 
lapse. 

It  is  the  aim  of  this  plan  to  create  an  organization 
which  could  not  be  controlled  by  the  financial  interests 
owning  the  stock,  and  so  insure  that  there  would  be 
no  contest  between  different  governments  or  nationals 
to  acquire  stock  for  the  purpose  of  influencing  the 
management  of  the  Gold  Reserve  Bank  of  the  United 
States  of  Europe.  The  charter  or  organization  docu- 
ment would  constitute  the  fundamental  law  under 
which  were  administered  the  affairs  of  the  Gold  Re- 
serve Bank  of  the  United  States  of  Europe.  It  might 
be  provided,  however,  that  the  charter  could  be 
amended  after  three-quarters  of  the  Class  "A"  Stock 
had  been  converted  into  Class  "B"  Stock,  provided 
that  three-quarters  of  the  stockholders  united  on  a 
program  for  some  new  plan  of  management.  It 
should  be  further  provided  that  such  a  change  in  the 
fundamental  law  could  not  take  place  unless  the  re- 
maining holders  of  Class  "A"  Stock  received  an  offer, 
good  for  ninety  days,  of  one  hundred  and  twenty  dol- 
lars per  share  and  accrued  dividends,  or  were  given 
the  opportunity  to  change  the  remaining  Class  "A1" 
Stock  into  Class  "B"  Stock. 

The  circulating  notes  of  the  Gold  Reserve  Bank  of 


252  WHAT  NEXT  IN  EUROPE? 

the  United  States  of  Europe  should  under  normal  con- 
ditions be  redeemable  on  demand  in  gold.  For  the 
purpose  of  redemption  there  must  always  be  on  hand 
a  gold  cover  of  at  least  twenty  percent.  It  is  obvious, 
however,  that  in  the  present  state  of  universal  dis- 
trust of  all  forms  of  paper  money,  any  financial  insti- 
tution issuing  circulating  notes  and  offering  at  once 
to  redeem  them  in  gold  coin  might  find  that  its  gold 
reserve  was  withdrawn  as  rapidly  as  the  notes  were 
put  out.  Any  plan  of  the  character  proposed  here 
could  not  work  in  a  community  which  used  the  notes 
to  draw  out  the  gold  and  then  hoarded  the  gold. 
While  it  is  the  intention  to  create  a  currency  that 
should  be  redeemable  in  gold,  and  for  which  gold  could 
be  had  at  any  time  on  demand,  that  desirable  condition 
could  only  be  attained  in  time  and  after  general  con- 
fidence in  sound  bank  notes  had  been  restored. 

If  the  withdrawal  and  hoarding  of  gold  should  con- 
tinue to  such  a  degree  that  it  impaired  the  usefulness 
of  the  bank,  the  Trustees  should  have  the  power  for 
the  time  being  to  suspend  the  redemption  of  the  notes 
in  gold.  They  should  also  permanently  have  the  power 
of  suspension  in  the  event  of  war  or  other  great 
crises.  The  provision  regarding  this  power  to  sus- 
pend the  gold  redemption  of  the  notes  would  need  to 
be  drawn  with  great  care.  It  is  an  important  part 
of  the  whole  scheme,  though  merely  the  principle  in- 


REPAIRING  EXCHANGES  253 

volved  is  mentioned  here.  Redemptions  of  currency 
in  gold  would  only  be  made  when  the  notes  were  pre- 
sented by  a  bank  and  not  on  individual  presen- 
tation. 

Whether  this  proposal  at  the  Porta  Rosa  Conference 
for  a  Federal  Reserve  Bank  for  Europe  is  ever  ac- 
cepted or  not,  it  is  obvious  that  some  plan  for  the 
stabilization  of  currency  in  many  of  the  countries  must 
be  put  into  practice.  As  I  have  said  before,  many  of 
these  nations  find  themselves  in  a  vicious  circle  from 
which  they  do  not  seem  able  to  rescue  themselves. 
Their  enormous  burden  of  indebtedness  and  expendi- 
tures has  led  to  the  inflation  of  their  currencies  and 
this  inflation  is  followed  by  depreciation  and  by  fur- 
ther increase  in  indebtedness.  The  remedy  must  lie 
outside  of  national  borders.  Any  scheme  that  is  de- 
vised to  save  the  European  states  from  the  peril  of 
financial  collapse  and  the  calamities  that  will  follow 
in  its  train  must  rest  on  some  degree  of  international 
cooperation. 

One  of  the  first  objections  urged  to  such  a  plan  as 
I  have  suggested  is  that  it  appears  to  present  a  situa- 
tion in  which  the  operation  of  Gresham's  Law  would 
interfere  with  the  circulation  of  the  new  notes. 
Gresham's  Law  enunciates  the  principle  that  when  two 
currencies  of  different  values  circulate  side  by  side, 


254  WHAT  NEXT  IN  EUROPE? 

payment  will  always  be  made  in  the  currency  of  the 
lower  value,  and  the  better  currency  will  disappear,  or 
will  fail  to  circulate  at  all.  That  is  true  in  any  normal 
situation,  particularly  when  the  two  currencies  are 
issued  under  identical  government  authority.  It  is  not 
true,  however,  when  it  is  applied  to  a  situation  where 
the  public  has  lost  confidence  in  the  value  of  an  exist- 
ing currency,  and  demands  a  new  currency  which  will 
have  some  stability. 

There  are  numerous  examples  of  two  currencies  cir- 
culating side  by  side.  For  a  time  our  dollars  circulated 
by  the  side  of  the  Cuban  peso.  In  the  Orient  to-day, 
sound  bank  notes  circulate  by  the  side  of  other  cur- 
rencies. It  is  true  that  there  would  always  be  a 
fluctuating  exchange  relation  between  the  old  currency 
and  the  proposed  new  bank  notes,  and  it  might  be 
objected  that  to  add  another  currency  with  a  variable 
exchange  ratio  would  be  only  adding  to  the  confusion. 

It  is  inherent  in  the  situation  that  the  introduction 
of  a  sound  note  will  bring  with  it  a  new  element  in 
the  exchanges,  and  that  such  a  new  sound  note,  if 
measured  in  the  existing  depreciated  currencies  will 
have  a  fluctuating  value.  The  fluctuation  will  really 
be  in  the  old  currency.  I  think  a  careful  examination 
of  the  situation  will  convince  even  classical  economists 
that  a  new  currency  can  be  introduced  and  circulated 
by  the  side  of  the  existing  currency.  It  is  true  that 
the  old  currency  may  continue  to  be  inflated  until  it 


REPAIRING  EXCHANGES  255 

has  no  value  at  all  and  disappears.  In  the  case  of 
several  nations  in  Central  Europe  this  seems  not  an 
improbable  outlook. 

There  are  many  other  objections  that  may  be  offered 
to  any  novel  currency  scheme.  There  are  many  ob- 
vious difficulties  in  the  way  of  introducing  such  a 
plan.  One  should  not  think  exclusively  of  those  dif- 
ficulties and  obstacles,  however,  but  rather  of  the 
probable  course  of  events  if  no  remedial  measures  are 
attempted.  There  must  be  a  serious  effort  made  at 
some  point  to  establish  a  sound  currency  which  will 
offer  reasonable  security  against  extravagant  fluctua- 
tions of  its  value,  when  used  as  a  measure  for  future 
contracts.  Commerce  requires  a  currency  in  which 
future  contracts  can  be  made  with  some  security.  At 
present  that  is  not  possible  in  the  case  of  the  cur- 
rencies of  several  of  the  European  countries,  and  it 
is  probable  that  the  number  of  these  countries  will  in- 
crease, rather  than  decrease. 

The  suggestion  has  been  made  that  an  international 
economic  conference  should  be  called,  in  which  all  in- 
terested nations  should  participate,  to  discuss  the  situa- 
tion. It  is  hoped  that  such  an  international  confer- 
ence might  serve  a  useful  purpose  by  giving  its  ap- 
proval and  prestige  to  some  particular  plan  for  a  re- 
habilitation of  the  currencies  of  a  number  of  European 
nations.  Each  individual  country  hesitates  to  act 
alone  in  giving  its  adherence  to  any  comprehensive 


256  WHAT  NEXT  IN  EUROPE? 

plan  designed  to  embrace  a  number  of  countries.  No 
matter  what  merits  any  plan  proposed  may  have,  con- 
ditions are  unfavorable  to  its  adoption  without  the 
authoritative  approval  of  a  group  of  international  and 
well-qualified  advisers.  If  an  international  economic 
conference  would  discuss,  amend  and  improve  the 
various  suggestions  that  would  be  brought  before  it, 
and  finally  give  its  approval  to  a  particular  plan,  it 
would  perform  an  extremely  useful  service,  and  one 
that  is  urgently  needed. 

It  is  not  reasonable  to  expect  that  America  will 
take  the  initiative  in  bringing  a  large  amount  of  capi- 
tal together,  and  proposing  a  definite  program  for 
its  use  in  creating  a  new  currency  for  Central  Europe, 
but  I  think  it  is  reasonable  to  anticipate  that  a  project 
could  be  agreed  upon  which  would  offer  security  for 
the  investment,  and  sufficient  promise  of  profit  to  draw 
to  it  an  adequate  amount  of  American  capital.  While 
the  figure  of  a  billion  dollars  has  been  suggested  as 
the  capital  for  a  bank  which  would  furnish  a  uniform 
currency  for  all  Europe,  the  start  of  such  an  enter- 
prise would  be  on  a  comparatively  small  scale,  because 
in  the  beginning  its  operations  would  probably  em- 
brace not  over  six  or  eight  of  the  smaller  countries, 
although  it  might  well  include  Germany.  The  finan- 
cial aspect  of  the  problem  of  raising  the  necessary 
capital,  when  viewed  in  the  light  of  that  fact,  be- 
comes a  reasonable  matter.  An  adequate  beginning 


REPAIRING  EXCHANGES  257 

could  probably  be  made  with  say  two  hundred  million 
dollars.  As  we  have  imported  between  six  and  seven 
hundred  million  dollars  of  gold  this  year,  such  a  sum 
does  not  seem  impossibly  large. 

The  manner  in  which  the  operations  of  such  a  bank 
as  I  have  suggested  would  begin  is  more  easily  under- 
standable when  it  is  recognized  that  there  is  already 
considerable  trading  going  on  in  some  of  the  Central 
European  states  in  foreign  currencies.  The  deprecia- 
tion of  their  own  currencies  is  becoming  so  complete 
that  they  turn  to  other  currency  for  greater  security. 

The  plan  for  a  bank  which  would  provide  a  uniform 
currency  for  a  number  of  those  countries  would  offer 
the  financial  machinery  to  accomplish  on  a  larger  scale 
what  is  already  being  done  in  small  and  varied  ways, 
and  under  great  handicaps.  I  am  not  blind  to  the  dif- 
ficulties that  a  project  for  any  such  bank  will  encounter 
in  its  initial  steps,  but  I  am  at  the  same  time  very 
keenly  awake  to  the  course  which  existing  currencies 
are  taking.  In  August  the  Austrian  crown  touched 
an  exchange  value  of  one  thousand  to  the  dollar;  by 
the  middle  of  December  it  had  reached  seven  thousand 
to  the  dollar,  and  there  was  nothing  to  indicate  it  had 
arrived  at  a  point  of  stability. 

Such  a  course  in  a  country's  currency  ought  to  make 
it  clear  that  radical  means  may  be  necessary  in  order 
to  create  a  currency  which  has  sufficient  stability  to 
provide  a  foundation  for  current  business  transactions, 


258  WHAT  NEXT  IN  EUROPE? 

and  one  in  which  the  terms  of  future  contracts  can  be 
stated. 

An  attitude  of  criticism  toward  constructive  sugges- 
tions is  not  sufficient  in  the  face  of  the  existing  situa- 
tions. A  recognition  of  the  facts,  and  an  earnest  at- 
tempt to  work  out  a  constructive  program  which  will 
give  a  starting  point  for  a  return  to  normal  commer- 
cial conditions  is  urgently  needed. 

America  ought  to  play  an  important  role  in  doing 
this,  and  out  of  its  experience  make  an  important  con- 
tribution toward  evolving  plans.  When  the  question 
is  raised  as  to  what  American  bankers  can  safely  do 
in  the  European  situation  at  the  present  time,  it  seems- 
to  me  that  the  answer  is  clear  that  this  is  one  of  the 
things  that  they  can  safely  consider,  and  that  it  is 
extremely  unwise  not  to  give  it  consideration. 


CHAPTER  XVI 
THE  ALLIES'  DEBT  TO  THE  UNITED  STATES 

THE  Great  War  increased  the  internal  debts  of  the 
European  belligerents  from  seventeen  to  one  hundred 
and  fifty-five  billion  dollars,  a  ninefold  increase.  The 
external  debts  of  these  countries,  which  before  the 
war  were  insignificant,  are  now  in  excess  of  twenty- 
five  billion  dollars. 

A  situation  in  which  governments  owe  to  other  gov- 
ernments sums  of  such  huge  proportions  is  unparalleled 
in  the  financial  history  of  the  world.  Internal  debts 
may  reach  fantastic  figures,  but  so  long  as  a  govern- 
ment has  a  printing  press  on  which  it  can  turn  out 
legal  tender  it  can  always  pay  interest  on  its  internal 
loans.  Its  debts  to  other  nations  are  quite  different 
affairs.  A  printing  press  will  not  pay  these :  nothing 
will  permanently  discharge  them,  when  the  sum  ranges 
into  such  figures  as  these  debts  have  reached,  except 
excess  of  exports  of  goods. 

Such  huge  debts  as  these  owed  and  owing  to  various 
nations  make  future  financial  calculations  impossible. 
Thus  far  neither  interest  nor  principal  has  been  paid 
on  them,  and  their  weight  has  been  psychological. 
They  have  not  yet  actively  figured  in  international 

259 


260  WHAT  NEXT  IN  EUROPE? 

exchanges.  They  make  a  load  of  potential  obligations, 
however,  that  has  paralyzed  the  minds  of  statesmen 
responsible  for  the  conduct  of  many  European  gov- 
ernments. They  turn  hopelessly  from  this  load  of 
debt  and  see  no  possibility,  while  it  is  unadjusted,  of 
a  return  to  financial  stability.  Some  settlement,  there- 
fore, of  inter-government  obligations  seems  an  impera- 
tive prerequisite  to  future  financial  stability. 

I  do  not  propose  to  enter  into  the  nature  of  what 
may  be  termed  strictly  inter-allied  debts,  that  is,  the 
debts  between  European  nations.  Those  debts  did  not 
arise  in  anything  like  the  clean-cut  way  in  which  were 
created  the  obligations  of  the  Allies  to  the  United 
States.  In  some  respects  they  were  little  more  than 
convenient  war  bookkeeping.  Many  counterclaims  can 
be  pleaded.  The  debts  due  from  the  Allies  to  the 
United  States  stand  on  a  quite  different  basis.  Our 
government  placed  dollars  to  the  credit  of  the  various 
Allies.  It  is  true  that  these  credits,  generally  speaking, 
were  restricted:  they  could  be  used  only  to  pay  for 
material  or  produce  purchased  in  the  United  States. 
That  restriction  was  not  universal,  however.  Consid- 
erable sums  arising  from  the  credits  granted  to  Great 
Britain  were  devoted  by  the  British  Government  to 
stabilizing  the  sterling  exchange  market.  Loans  so 
used  found  their  way  to  pay  for  wheat  in  the  Argen- 
tine, and  to  settle  other  international  obligations  than 
those  due  to  the  United  States. 


ALLIES'  DEBT  TO  THE  UNITED  STATES     261 

When  the  United  States  Government  loaned  these 
sums  of  money  to  the  Allies,  our  government  expected 
repayment.  At  the  time  the  loans  were  made  there 
was  never  a  suggestion  that  they  should  be  regarded  as 
part  of  our  contribution  to  America's  war  effort.  To 
provide  the  funds  so  loaned  we  sold  Liberty  Bonds  and 
War  Savings  Stamps.  The  Treasury  Department  in- 
structed those  responsible  for  the  sale  of  these  securi- 
ties to  emphasize  the  fact  that  part  of  the  money  the 
Treasury  got  in  from  American  investors  was  being 
reloaned  to  European  governments;  that  those  loans 
would  be  repaid,  and  that  the  interest  burden  upon  our 
taxpayers  would  be  lightened  by  interest  payments  we 
were  to  receive  from  the  European  debtors. 

With  the  close  of  the  war,  there  began  to  arise  in 
Europe  confusion  of  thought  and  irresolution  of  pur- 
pose in  regard  to  the  repayment  of  these  loans.  Their 
total  had  become  so  huge,  the  debtors  had  become  so 
impoverished,  that  the  weight  of  the  burden  seemed  in 
the  eyes  of  Europeans  to  be  intolerable,  and,  being  in- 
tolerable, to  be  unjust. 

In  the  minds  of  our  European  debtors  the  argument 
ran  in  this  way:  We  had  all,  Allies  and  Associates 
alike,  been  engaged  in  a  common  purpose.  It  was  as 
important  to  America  as  it  was  to  the  Allies  that  the 
war  be  won.  Rightly  or  wrongly,  America  had  come 
into  active  participation  only  toward  the  end  of  the 
struggle.  No  matter  how  essential  American  help  may 


262  WHAT  NEXT  IN  EUROPE? 

have  been,  it  was  their  feeling  that  America  performed 
in  the  field  no  great  military  feat  before  hostilities 
ended.  Our  debtors  argue  that  there  had  been  a  long 
period  prior  to  our  entry  into  the  War,  during  which 
we  sold  to  the  Allies  billions  of  dollars'  worth  of 
produce  and  military  equipment.  We  had  charged 
high  prices:  presumably  we  made  great  profits.  The 
close  of  the  war  found  the  Allies  financially  impov- 
erished, horribly  hurt  by  loss  of  man  power,  and  fac- 
ing the  necessity  for  vast  expenditures  for  reconstruc- 
tion. The  outlook  for  reimbursement  of  these  expendi- 
tures from  German  indemnity  rapidly  grew  more  and 
more  nebulous. 

With  such  considerations  in  mind  it  was  easy  for 
debtors  to  argue,  with  a  logic  that  convinced  their  own 
minds,  that  America  had  come  into  the  war  late,  had 
largely  profited  financially  before  she  entered  the  war, 
had  sustained  no  direct  material  war  damage,  and  had 
lost  comparatively  few  men.  It  was  easy  for  them  to 
argue  that  as  America  had  emerged  from  the  war  the 
one  really  solvent  nation,  it  would  be  not  only  a  matter 
of  good  sense  on  the  part  of  a  rich  creditor,  but  a 
matter  of  sound  justice  as  well,  if  we  should  cancel  the 
obligations  of  the  Allies  so  far  as  their  obligations  are 
measured  by  financial  indebtedness  to  us. 

That  opinion  has  come  to  be  held  generally  in  Eu- 
rope. There  is  growing  irritation  because  it  is  felt 


ALLIES'  DEBT  TO  THE  UNITED  STATES     263 

that  we  are  again  exhibiting  the  same  cautious  slowness 
when  we  hesitate  about  canceling  these  obligations  that 
we  showed  before  we  determined  to  come  into  the  war 
at  all. 

In  their  own  counsels  at  least  nearly  every  nation 
blankly  admits  inability  to  pay. 

Great  Britain  takes  a  somewhat  different  attitude. 
There  are  owed  her  by  other  nations  a  sum  exactly 
equal  to  the  amounts  she  owes  the  United  States. 
Why  should  not  her  credits  cancel  her  debts?  Many 
Englishmen  are  slow  to  say  they  do  not  owe  this  debt, 
but  on  the  other  hand  there  are  many  people  in  re- 
sponsible positions  in  England  who  hold  that  the  debt 
should  not  be  considered  on  the  same  basis  as  an  ordi- 
nary relation  between  debtor  and  creditor. 

The  foregoing  is  a  fair  picture  of  the  situation  to- 
day. The  total  weight  of  international  obligations  has 
become  so  great  that  it  menaces  all  future  financial 
stability.  It  promises  to  make  the  recovery  of  gen- 
eral financial  stability  in  Europe  impossible  unless  some 
means  for  adjusting  these  debts  is  found.  All  debt- 
ors would  like  to  see  a  general  clearing  of  these  obli- 
gations. Most  of  them  have  argued  themselves  into 
a  frame  of  mind  in  which  doubt  is  raised  as  to  the 
justice  of  an  attitude  by  the  United  States  looking  to- 
ward the  enforcement  of  the  obligations.  In  any 
event,  it  is  believed  both  by  statesmen  and  financiers 


264  WHAT  NEXT  IN  EUROPE? 

that  it  is  impossible  for  Europe  to  stagger  back  to 
stability  under. this  enormous  load  of  international 
debts. 

England  would  be  quite  willing  to  pay  what  she  owes 
if  she  could  be  paid  what  she  is  owed;  failing  that, 
the  feeling  there  is  general  that  her  obligations  should 
be  canceled  if  she  cancels  the  obligations  due  her. 

The  French  have  the  least  objectivity  in  their  point 
of  view  of  any  people  in  Europe.  Their  patriotism 
and  nationalism  are  so  intense,  their  belief  that  France 
is  a  sacred  respository  of  world  culture  is  so  complete, 
that  the  examination  of  any  subject  whatever  in  France 
starts  with  this  axiom :  "France  has  been  damaged ; 
that  damage  must  be  made  good;  France  must  be  re- 
stored.' '  No  matter  how  remote  a  subject  may  be 
from  the  forces  which  involved  France  in  this  damage, 
it  is  never  considered  except  upon  the  postulate  of  this 
axiom.  France  has  been  injured;  her  injuries  must 
be  repaired.  Unless  the  conclusions  in  regard  to  any 
problem  square  with  that  axiom,  the  conclusions  are 
set  down  as  wrong. 

Europe  feels  it  is  gripped  to-day  in  the  jaws  of 
pinchers,  the  handles  of  which  are  two  sets  of  financial 
obligations,  impossible  of  discharge.  One  handle  of 
those  pinchers  is  the  war  indemnity,  the  other  the  inter- 
government  debts.  By  every  one  outside  of  France  it 
is  admitted  that  the  indemnity  as  laid  is  impossible 
of  execution.  Furthermore,  England  sees  that  if  the 


ALLIES*  DEBT  TO  THE  UNITED  STATES     265 

indemnity  could  be  paid,  its  fulfillment  would  for  the 
time  being  ruin  English  industry. 

Outside  of  France  there  is  unanimity  of  opinion 
that  unless  the  terms  of  the  indemnity  are  materially 
altered,  Germany  will  go  into  financial  collapse.  Im- 
possible as  the  terms  of  the  indemnity  are  admitted  to 
be,  the  Allies  find  their  initiative  for  its  alteration  para- 
lyzed, because  they  see  that  if  the  indemnity  was  so  al- 
tered as  to  become  a  tolerable  burden  for  Germany,  the 
Allies  would  still  find  themselves  facing  a  burden  of 
inter- Allied  indebtedness  as  intolerable  to  them  as  are  the 
existing  terms  of  reparation  to  Germany.  To  ease  the 
burdens  on  the  back  of  Germany  only  to  find  them- 
selves crushed  by  the  weight  of  inter-Allied  debts  that 
is  hopelessly  heavy,  paralyzes  their  purpose  to  deal  with 
the  indemnity  situation.  And  so  thus  far  Germany  has 
been  left  to  drift  rapidly  on  a  course  that  seems  likely 
to  end  in  a  financial  debacle. 

In  England  there  is  a  sharp  awakening  to  the  eco- 
nomic significance  of  receiving  great  international 
payments  such  as  those  involved  in  the  figures  of  the 
indemnity,  or  the  figures  of  the  inter- Allied  debts. 
Such  totals  can  only  be  paid  in  goods.  Goods  exported 
by  one  nation  come  into  competition,  either  in  the 
home  markets  of  the  creditors,  or  in  neutral  markets 
where  they  are  disposing  of  their  own  products.  It 
is  seen  that  the  export  of  goods  sufficient  in  amount 
to  meet  claims  of  such  magnitude  as  the  indemnity, 


266  WHAT  NEXT  IN  EUROPE? 

or  the  inter-government  debts,  cuts  new  channels  of 
commerce  that  may  hurt  the  nation  receiving  payment 
as  much  as  it  burdens  the  nation  making  payment. 
These  considerations  lead  to  a  search  for  some  means 
of  at  least  passing  the  inter-government  debts  through 
a  clearing  house  and  reducing  their  total  volume. 
Such  a  process  would  help  those  nations  who  both  owe 
and  are  owed,  but  it  would  leave  the  strictly  debtor 
nations  still  in  an  intolerable  position. 

By  all  odds  the  largest  total  among  the  inter-govern- 
ment debts  is  the  sum  owed  the  United  States  by  the 
Allies.  The  economic  incidence  of  the  debt  due  us  is 
complicated  by  the  fact  that  the  United  States  is  solely 
a  creditor.  We  owe  no  other  nation.  In  a  general 
clearing  of  debt,  no  one  could  offset  any  of  our  claims 
by  a  credit  which  would  reduce  the  amount  that  others 
owe  us. 

The  subject  is  one  that  is  being  given  profound  con- 
sideration, not  only  in  those  nations  which  are  debt- 
ors, but  in  all  other  European  countries.  Those  coun- 
tries which  are  neither  international  debtors  or  credit- 
ors, see,  nevertheless,  that  their  futures  are  involved 
in  the  future  of  the  debtor  nations. 

It  will  be  necessary,  however,  for  America  at  an 
early  date  to  do  some  clear  thinking  in  regard  to  the 
obligations  of  the  Allies  to  our  government,  amount- 
ing as  they  now  do  to  eleven  billion  dollars.  To  this 
subject  I  have  given  a  great  deal  of  consideration.  I 


ALLIES'  DEBT  TO  THE  UNITED  STATES     267 

have  discussed  it  with  the  leading  responsible  govern- 
ment ministers  and  financiers  of  Europe.  My  conclu- 
sions are  these: 

So  far  as  America  is  concerned  we  should  do  noth- 
ing which  will  stimulate  quibbling  as  to  the  basic  fact 
of  the  obligations.  We  loaned  American  dollars. 
They  were  raised  under  the  greatest  pressure  from  our 
people.  It  was  at  the  time  regarded  by  no  one  as 
part  of  our  war  contribution.  That  contribution  was 
made  in  full  measure  and  in  ample  amounts  when  we 
spent  directly,  as  we  did,  eighteen  billion  dollars,  and 
when  we  moved  two  million  men  over  three  thousand 
miles  of  water  to  the  battlefields.  The  loans  are  mat- 
ters of  honor  between  our  associates  and  the  Treasury 
of  the  United  States.  At  the  time  these  loans  were 
made,  not  the  slightest  suggestion  was  raised  casting 
doubt  as  to  the  nature  of  the  obligations  which  were 
created.  They  were  unequivocal  obligations  to  re- 
pay. 

America  for  many  years  to  come  will  be  the  great 
world  reservoir  of  capital.  If  our  first  great  adventure 
in  granting  international  credit  were  to  have  the  un- 
happy conclusion  of  repudiation  by  our  debtors,  that 
reservoir  of  capital  will  be  sealed  in  the  future  to  any 
further  flow  in  the  direction  of  Europe.  It  would  be 
inconceivable  that  American  investors,  should  they  find 
that  foreign  obligations  are  so  lightly  regarded  as  to 
be  repudiated  when  their  payment  becomes  onerous, 


268  WHAT  NEXT  IN  EUROPE? 

will  again  go  into  their  pockets  to  find  funds  for  future 
international  loans.  That  is  a  point  to  which  Euro- 
pean debtors  may  well  give  thought.  In  the  rehabilita- 
tion of  Europe  there  will  be  need  for  American  capi- 
tal. No  action  should  be  now  taken  by  European 
nations  which  will  cut  them  off  from  their  only  impor- 
tant source  for  the  future  supply  of  international 
loans. 

Then  comes  quite  a  different  point  to  consider. 
What  would  be  the  effect  upon  America  if  this  debt 
were  acknowledged  and  paid?  It  is  true  that  small 
balances  may  be  settled  by  the  payment  in  gold;  that 
pressing  obligations  may  be  converted  into  funded 
debts  running  over  a  long  period;  it  is  conceivable 
that  a  debt  owed  by  one  nation  to  another  might  be 
converted  into  the  ownership  of  properties  or  invest- 
ments acquired  by  the  nationals  of  the  creditor  country 
from  the  nationals  of  the  debtor  country.  Broadly 
speaking,  however,  obligations  running  into  such 
amounts  as  are  contemplated  in  the  German  indem- 
nity and  in  the  figures  of  the  European  international 
debts  can  only  be  discharged  by  the  payment,  directly 
or  indirectly,  in  goods. 

If  that  is  admitted  it  may  well  give  us  pause  while 
we  consider  the  effect  upon  our  industrial  life  of  a 
situation  and  policy  which,  if  carried  to  a  logical  con- 
clusion, may  result  in  the  influx  into  the  United  States 
of  a  heretofore  undreamed  of  total  of  foreign  impor- 


ALLIES'  DEBT  TO  THE  UNITED  STATES     269 

tations  of  competitive  goods.  It  will  not  do  for  us 
to  erect  tariff  barriers  against  such  an  influx,  if  we 
admit  that  it  is  only  by  the  inflow  of  goods  that  the 
debts  can  be  paid.  We  must  make  up  our  minds  to 
receive  the  goods,  and  in  receiving  them  accept  the  con- 
sequences. 

The  full  consequences  would  be  profound  if  the 
payments  could  be  made  and  were  made  with  any 
degree  of  promptness.  We  need  not  look  further  than 
to  contemplate  merely  the  receipt  of  half  a  billion 
dollars  a  year  of  interest.  If  that  came  in  the  form 
of  goods,  our  industrial  situation  would  be  upset  in 
a  way  and  to  an  extent  we  have  not  heretofore  expe- 
rienced. The  effect  upon  our  labor  situation  and  the 
consequent  social  problems  which  would  be  raised, 
would  be  menacing. 

It  would  appear  then  that  we  had  erected  a  paradox, 
if  we  take  this  view  of  the  situation.  To  insist  that 
the  debts  are  just  ones  and  should  be  paid,  but  to 
admit  that  the  receipt  of  payment  would  be  disastrous 
to  us,  and  therefore  should  be  avoided,  is  an  apparent 
contradiction.  If  they  can  and  do  pay,  one  is  left 
with  the  belief  that  debtor  and  creditor  will  alike  be 
seriously  harmed. 

In  some  quarters  in  America  I  find  a  disposition  to 
meet  the  situation  in  this  way.  Feeling  a  growing 
apprehension  that  our  debtors,  or  at  least  most  of 
them,  are  insolvent,  it  is  admitted  that  the  cancella- 


270  WHAT  NEXT  IN  EUROPE? 

tion  of  the  debt,  or  at  least  its  scaling,  may  be  inevita- 
ble. If  cancellation  is  inevitable,  whatever  our  opinion 
of  the  justice  of  the  claim  may  be,  it  is  asked  if  there 
is  not  some  better  way  than  merely  to  wipe  out  the 
debt.  If  we  should  wipe  out  the  debt  we  may  be  sure 
that  our  late  debtors  will  show  very  little  apprecia- 
tion. They  will  in  many  cases  feel  that  we  have  been 
slow  about  taking  an  inevitable  action. 

There  is  a  feeling  on  the  part  of  those  who  would 
exact  something  in  return  for  cancellation,  that  Euro- 
peans have  generally  badly  mismanaged  their  affairs; 
that  Europe  has  brought  upon  herself,  and  upon  the 
world,  profound  confusion.  They  believe  that  we 
have,  in  the  Allied  obligations,  a  certain  amount  of 
advantage,  even  though  it  is  admitted  that  these  debts 
are  an  uncertain  instrument  of  power.  So  it  has  oc- 
curred to  many  people  to  wonder  if  it  will  not  be 
possible,  instead  of  blankly  surrendering  our  eleven 
billion  dollars,  to  surrender  the  debt  conditionally, — to 
surrender  it  only  against  some  guarantee  that  in  the 
future  European  behavior  will  be  improved,  to  the  end 
that  European  civilization  may  be  rescued  from  the 
grave  dangers  which  it  is  facing. 

That  leads  to  an  inquiry  in  some  detail  as  to  just 
how  Europe  is  now  misbehaving.  It  raises  the  ques- 
tion as  to  whether  or  not  it  is  conceivable  that  the 
particular  nations  owing  us  can  now  give  guarantees 
which  would  be  of  value  for  future  good  behavior. 


ALLIES'  DEBT  TO  THE  UNITED  STATES     271 

The  first  thought  in  such  an  inquiry  would  probably 
be  directed  toward  a  reduction  of  excessive  armaments. 
That  is  naturally  an  obstacle  in  the  way  of  our  show- 
ing complete  sympathy  with  France,  for  example.  It 
will  be  difficult  to  agree  to  the  canceling  of  France's 
debt  to  America,  while  France  is  of  her  present  mind 
and  continues  to  maintain  an  army  of  seven  to  eight 
hundred  thousand  men. 

France  might  feel,  with  a  good  deal  of  reason,  that 
we  should  agree  with  her  that  it  would  be  national 
folly  for  her  to  reduce  the  strength  of  her  army,  unless 
she  first  obtains  some  outside  guarantee  for  her  future. 
France  is  neighbor  to  a  far  larger  nation  which  to  a 
man  now  feels  that  it  has  been  unjustly  treated.  Ger- 
many may  be  ever  so  war-sick  at  the  moment,  but  it  is 
not  only  conceivable,  it  is  quite  probable,  that  the  day 
will  come  when  Germany  will  seek  by  force  to  retrieve 
losses  imposed  by  what  she  believes  to  be  a  thoroughly 
unjust  treaty  of  peace. 

If  we  found  that  the  reduction  of  armaments  in 
France  could  be  purchased,  not  alone  by  the  remis- 
sion of  the  indebtedness  of  France  to  us,  but  that 
we  must  in  addition  pay  with  a  guarantee  which  will 
insure  France  from  future  invasion,  pay  in  a  guarantee 
that  her  national  integrity  is  to  be  permanently  up- 
held, we  might  well  regard  the  cost  of  her  reduction 
in  armaments  at  that  price,  as  too  high. 

What  further  bill  of  particulars  of  European  mis- 


272  WHAT  NEXT  IN  EUROPE? 

behavior  might  we  make  up?  At  least,  what  other 
misbehavior  is  there  that  any  of  our  debtor  nation* 
could  themselves  correct  and  could  guarantee  perma- 
nently to  stand  corrected,  in  return  for  our  surrender- 
ing our  debt? 

I  assume  that  in  any  proposal  of  this  type  we  would 
be  aiming  at  general  European  recovery.  One  of  the 
obstacles  in  the  way  of  such  general  recovery  is  the 
extent  and  the  terms  of  the  claims  of  the  Allies  for 
reparations.  These  claims  may  be  far  too  small  to 
offer  material  compensation  for  the  damage  which 
Germany  has  caused;  nevertheless,  they  are  far  too 
large  to  make  it  conceivable  that  Germany  can  pay 
them. 

I  put  to  one  of  the  most  distinguished  English  states- 
men of  the  present  day  this  general  problem  of  war 
cancellation.  I  asked  him  what,  in  his  opinion,  we 
ought  to  ask  for  canceling  our  claims  against  the 
Allies,  as  he  strongly  felt  we  should  do.  His  reply 
showed  the  objectivity  of  the  British  mind. 

His  proposal  was  that  the  American  Government 
should  say  to  the  Allies  that  the  Allied  indebtedness 
will  be  canceled  provided  the  Allies  will  in  turn  reduce 
by  the  same  amount  their  demands  upon  Germany  for 
indemnity. 

Such  a  proposal  seems  to  me  to  be  without  sound 
principle.  If  the  indemnity  is  too  high,  if  its  terms  are 
impossible  of  fulfillment,  the  Allies  have  it  quite  within 


ALLIES'  DEBT  TO  THE  UNITED  STATES    273 

their  power  to  reduce  it.  No  more  futile  proposal 
could  be  made  to  America  from  a  political  point  of 
view  than  to  suggest  the  purchase  by  the  cancellation 
of  our  debt  of  a  reasonable  attitude  on  the  part  of  the 
Allies  toward  Germany.  It  would  be  to  purchase  some- 
thing which  it  is  obviously  in  the  interests  of  the  Allies 
to  adopt ;  failure  by  the  Allies  to  adopt  such  a  course 
promises  to  be  followed  by  such  contagious  financial 
decay  that  the  Allies  must  act  promptly,  or  quickly 
feel  the  heavy  weight  of  the  consequences.  Why  then 
should  we  purchase  this  wiser  attitude  at  the  expense 
of  canceling  our  just  claims? 

Recasting  the  terms  of  the  indemnity  would  un- 
doubtedly be  a  helpful  factor  in  European  recovery. 
The  objection  to  the  indemnity  as  it  is  now  laid  is  a 
double  one.  First,  the  indemnity  is  larger  than  Ger- 
many can  conceivably  pay.  The  consequences  of  such 
a  burden,  if  the  Allies  persisted  in  binding  it  upon  her 
shoulders,  will  be  a  financial  debacle.  Financial  break- 
down in  Germany  will  inevitably  involve  other  coun- 
tries in  Europe. 

The  other  evil  that  follows  from  the  present  terms 
of  the  indemnity  attaches  directly  to  the  allied  credit- 
ors. So  far  as  payment  is  made  it  is  bringing  disturb- 
ance into  their  domestic  industrial  life.  That  applies 
particularly  to  England.  Only  a  fraction  of  the  in- 
demnity is  payable  to  England,  but  she  experiences  to 
the  full  the  false  competition,  in  which  Germany  is 


274  WHAT  NEXT  IN  EUROPE? 

forced  to  engage,  in  order  to  provide  the  equivalent  of 
gold  payments  which  the  terms  of  the  London  Confer- 
ence compel  her  to  do. 

If  we  undertake  to  find  ways  in  which  we  might 
direct  European  political  policy  under  the  threat  of 
enforcing  our  financial  claim,  or  under  the  bribe  of  re- 
linquishing it,  I  believe  we  would  find  this  whole  field 
of  exploration  a  fruitless  one.  Any  attempt  seriously 
to  enter  it  would  result  in  involving  us  in  meddling 
with  European  political  policy.  To  become  so  involved 
is  opposed  to  every  American  national  sentiment.  I 
should  abandon,  then,  the  theory  that  we  might  cancel 
the  allied  indebtedness  in  exchange  for  the  privilege 
of  imposing  certain  rules  of  political  conduct  upon 
our  debtors. 

I  should  likewise  reject  at  once  the  suggestion  that 
in  exchange  for  cancellation  we  ask  to  be  given  cer- 
tain trade  concessions,  that  we  demand  special  com- 
mercial privileges.  The  genius  of  our  foreign  policy 
has  long  been  the  open  door,  equal  rights,  a  fair  field. 
If  we  should  through  the  cancellation  of  this  indebted- 
ness buy  special  privileges  for  our  commerce  and  dis- 
criminatory treatment  favorable  to  American  business, 
we  would  buy  something  which  we  ought  not  to  have, 
and  something  which  would  in  the  end  plague  us  infi- 
nitely -more  than  it  would  ever  prove  to  our  advan- 
tage. 

What  then  shall  be  done?     Is  there  some  way  in 


ALLIES'  DEBT  TO  THE  UNITED  STATES     275 

which  the  integrity  of  national  promises  may  be  kept, 
some  plan  under  which  our  future  international  rela- 
tionships may  not  be  darkened  by  repudiation?  Can 
we,  while  accomplishing  those  objects,  at  the  same 
time  avoid  the  consequences  on  the  one  hand  of  ruin- 
ing our  debtors,  and  the  danger  on  the  other  hand  of 
ruining  ourselves? 


CHAPTER  XVII 
PAYMENT  AND  REHABILITATION 

TOWARDS  the  close  of  the  war,  President  Wilson 
put  into  words  of  high  spiritual  meaning  the  very 
essence  of  the  best  of  American  aspirations  for  peace. 
His  words  inflamed  all  Europe  with  a  passionate 
hope  that  there  had  come  into  the  world  of  inter- 
national relationships  a  new  note  of  fairness  and 
good- will.  Such  a  wave  of  idealism  swept  through 
the  common  people  of  Europe  as  had  never  before  been 
witnessed  in  all  history. 

Those  ideals  were  hopelessly  crushed  at  Paris.  Not 
one  of  them  remained  when  the  treaties  were  written, 
and  Europe  fell  back  into  something  far  worse  than 
its  old-time  cynicism.  The  voice  of  America,  uttering 
beautiful  doctrines  of  brotherhood,  through  its  chief 
magistrate,  sounded  to  Europe  like  a  sacred  gospel; 
and  then  America,  along  with  her  associates,  aban- 
doned that  gospel.  Hope  turned  into  despair,  belief 
into  cynicism,  and  faith  was  burned  up  in  new  fires 
of  racial  hatreds.  It  is  a  commonplace  to  say  that 
the  greatest  opportunity  to  benefit  humanity  that  ever 
came  to  any  man  lay  at  one  moment  in  the  hands  of 

276 


PAYMENT  AND  REHABILITATION       277 

Woodrovv  Wilson.     The  opportunity  passed.     Hopes 
were  not  realized. 

To-day  that  same  opportunity  lies  at  the  feet  of 
America  as  a  nation.  Its  fate  no  longer  rests  in  the 
hands  of  one  individual;  it  is  the  responsibility  of  a 
whole  people.  Having  in  our  hands  the  opportunity 
to  do  an  incalculable  service  to  mankind  it  remains  to 
be  seen  whether,  as  a  nation,  we  will  rise  to  that 
opportunity,  whether  we  will  perform  the  service  that 
is  before  us,  or  whether  as  a  nation  we  too  shall  fail. 

America  can,  if  she  will,  shrewdly  choose  the  road 
out  of  the  difficulties  in  which  she  is  involved  through 
allied  indebtedness.  Such  a  road  would,  I  believe,  lead 
to  greater  material  gain  for  civilization  in  general, 
while  for  America  it  would  lead  to  a  great  moral  and 
vast  material  gain. 

For  America  it  will  mean  the  most  substantial  mate- 
rial advantage  that  has  ever  flowed  from  any  single 
political  act.  More  important  than  the  material  gain, 
there  would  be  spiritual  gain  which  would  give  us  a 
moral  leadership  so  far-reaching  that  the  responsibility 
of  it  should  make  us  humble  rather  than  vainglorious. 

I  would  want  America  to  be  both  an  intelligent 
and  a  lenient  creditor.  Terms  of  payment  ought  to  be 
adapted  to  the  means  of  our  debtors.  In  that  respect 
we  should  take  the  action  of  the  Allies  in  fixing  the 
terms  of  the  indemnity  as  an  example  to  be  avoided 
rather  than  followed. 


278  WHAT  NEXT  IN  EUROPE? 

The  crux  of  my  plan  would  lie  in  the  disposition  of 
the  payments. 

I  would  have  America  make  a  grand  gesture  in  inter- 
national relationships.  While  demanding  that  the  pay- 
ment be  made,  I  would  have  America  say  that  she  is 
prepared  for  the  present  to  forego  the  receipt  of  it. 
That  is  how  the  consequences  of  the  paradox  may  be 
avoided. 

What  then  shall  we  do  with  it?  I  would  like  to  see 
every  dollar  that  can  ever  be  paid  to  us  by  our  debtors 
for  years  to  come  devoted  to  the  rehabilitation  of  Euro- 
pean civilization.  It  is  only  through  the  rehabilitation 
of  European  civilization  that  these  debts  can  ever 
conceivably  be  paid.  It  is  only  through  the  rehabili- 
tation of  European  civilization  that  America  can  ever 
conceivably  realize  in  full  measure  her  destiny,  or  can 
expect  a  full  measure  of  prosperity  for  her  people. 

I  would  bring  a  spirit  into  the  affairs  of  distressed 
Europe  which  would  promise  a  revival  of  hope,  a  re- 
newal of  courage,  a  stimulation  of  industry. 

There  is  to-day  a  pall  of  cynicism,  of  national 
hatred,  and  of  disbelief  in  the  sincerity  of  friend  and 
foe  alike,  which  makes  the  start  towards  rehabilitation 
almost  impossible. 

Let  us  now  soberly  examine  what  it  is  that  we  might 
do. 

Large  sections  of  Europe  are  backward,  judged  by 


PAYMENT  AND  REHABILITATION       279 

our  standards.  Backward  though  they  may  be,  they 
are  bursting  with  latent  possibilities  for  development. 
A  study  of  Eastern  Europe  has  aroused  in  my  mind  a 
vivid  program.  I  believe  a  plan  for  the  development 
of  Eastern  Europe  could  be  laid  out  which  might  well 
be  compared  to  the  vision  our  forefathers  had  when 
the  latent  possibilities  of  our  great  West  were  un- 
folded to  their  minds. 

I  do  not  mean  that  Eastern  Europe  is  a  wilderness. 
In  natural  opportunity  for  development  it  is  vastly 
richer  than  any  wilderness.  There  is  everything  at 
hand  there  except  education,  economic  organization, 
the  application  of  enlightened  methods  to  production, 
and  the  harmonizing  of  blind  racial  antagonisms. 

Everything  the  war  has  cost,  everything  an  unwise 
peace  is  costing,  can  be  recompensed,  and  beyond  that 
a  great  economic  margin  created,  if  Eastern  Europe 
can  be  put  in  order,  can  be  helped  and  led  wisely  to 
handle  its  own  problems. 

You  may  ask  how  can  I  soberly  imagine  that  Amer- 
ica can  largely  contribute  toward  that  end ;  suppose  she 
had  in  hand,  and  was  ready  to  devote  to  such  a  pur- 
pose the  interest  and  principal  of  the  Allied  debts? 
Great  as  that  sum  would  be,  it  would,  after  all,  be 
small  compared  to  what  Europe  is  already  spending 
for  government. 

Curiously,  as  governments  are  organized  in  this 


a8o  WHAT  NEXT  IN  EUROPE? 

world  and  time,  they  find  it  impossible  to  make 
expenditures  for  those  very  objects  which  would  be  of 
the  greatest  possible  value  in  improving  civilization. 
Moved  as  we  are,  governed  as  we  are,  it  is  possible  for 
nations  to  raise  by  taxation  huge  sums,  provided  those 
sums  are  devoted  to  certain  purposes.  Without  much 
grumbling  a  nation  will  tax  itself  to  build  at  frequent 
intervals  a  forty-million-dollar  battleship.  It  will  tax 
itself  to  support  a  great  army,  to  maintain  a  too  nu- 
merous civil  service.  As  a  matter  of  course  European 
nations  tax  themselves  vast  sums  to  pay  for  the  costs 
of  past  wars,  and  to  provide  against  the  possibilities 
of  future  wars. 

While  a  nation  will,  with  prodigal  hands,  spend 
money  on  those  things  which  have  furnished  the  chief 
items  of  national  budgets  for  a  thousand  years,  it 
will  at  the  same  time  refrain  from  doing  an  endless 
number  of  things  which,  if  done,  would  profoundly 
affect  for  the  better  the  nation's  future,  and  pro- 
foundly influence  for  the  better  the  course  of  civiliza- 
tion. 

Most  of  such  admirable  projects  are  now  left  to  be 
worked  out  in  a  puny  way  by  an  occasional  philan- 
thropist, or  more  often,  left  altogether  undone.  Any 
one  with  wide  experience  and  awakened  imagina- 
tion knows  that  it  would  be  possible  to  make  expen- 
ditures of  a  character  now  rarely,  if  ever,  sanctioned 
by  the  taxpayer,  the  return  upon  which,  in  terms  of 


PAYMENT  AND  REHABILITATION       281 

the  welfare  of  mankind,  would  be  incalculably  greater 
than  is  the  return  from  most  of  the  objects  upon  which 
government  incomes  are  lavished. 

It  is  to  such  a  program  that  I  would  devote  for 
many  years  every  pound,  franc  and  lira  we  can  get 
of  this  debt. 

I  believe  if  the  money  was  thus  wisely  expended, 
one  of  the  results  would  be  such  marked  economic  im- 
provement in  Europe  that  in  time  every  dollar  of  these 
debts  could  be  paid.  It  is  now  a  claim  we  are  never 
likely  to  realize,  or  at  least  to  realize  in  but  small  meas- 
ure. 

If  such  a  program  were  undertaken  I  would  hope 
that  little,  if  any,  of  the  funds  would  be  expended 
in  strictly  welfare  work.  The  last  thing  we  ought  to 
do  is  to  pauperize  anyone.  There  is  still  perhaps 
some  welfare  work  that  will  have  to  be  done,  but  in 
the  main  the  expenditure  should  be  made  with  great 
vision  of  the  future,  rather  than  as  a  palliative  to  ease 
the  distress  of  the  moment. 

There  is  a  situation  at  present  in  Europe  in  which 
the  old  machinery  of  commerce,  by  means  of  which 
goods  were  interchanged  and  the  life  of  Europe's  vast 
population  made  possible,  is  now  so  out  of  gear  that 
a  resumption  of  old  commercial  relationships  prom- 
ises at  the  very  best  to  be  but  slowly  brought  about. 
Those  old  relationships  must  promptly  be  resumed,  or 
much  of  what  we  call  the  civilization  of  Europe  will 


282  WHAT  NEXT  IN  EUROPE? 

perish.  One  of  my  first  concerns  would  be  to  help 
to  do  that;  but  helping  to  put  in  order  the  old  ma- 
chinery of  commerce  would  not  be  enough,  nor  would 
that  accomplishment  be  really  the  ultimate  aim. 

A  considerable  part  of  what  we  received  might  well 
be  used  as  a  revolving  fund  of  credit.  It  could  be 
loaned  to  nations  to  help  them  accomplish  specific  pur- 
poses, purposes  which  we  had  carefully  analyzed  and 
believed  to  be  economically  sound  and  for  the  general 
good,  purposes  which  would  accomplish  substantial  and 
permanent  economic  and  social  results.  The  funds  so 
loaned  could  in  time  be  repaid;  if  the  purposes  for 
which  they  had  been  used  were  economically  sound  they 
could  be  repaid  without  difficulty,  and  could  then  be 
similarly  reloaned  over  and  over  again,  and  ultimately 
paid  back  to  us. 

With  the  proposal  to  collect  from  our  debtors  and 
expend  what  we  collect  in  Europe,  a  question  at  once 
arises.  If  our  debtors  cannot  pay  us  directly,  how 
are  they  better  able  to  pay  us  in  order  that  we  may 
expend  what  they  pay  in  Europe  for  rehabilitation? 
If  they  cannot  pay  us  at  all,  what  is  the  use  of  dis- 
cussing how  the  money  they  owe  us  might  best  be 
spent  ? 

There  is  sharp  economic  distinction  between  a  pay- 
ment made  directly  to  us  in  dollars  by  European  na- 
tions and  a  payment  made  through  us  to  be  left  in 
Europe  and  expended  there  for  Europe's  immediate 


PAYMENT  AND  REHABILITATION       283 

economic  welfare.  If  we  are  to  be  paid  directly  it 
means  that  Europe  must  sell  to  us  not  only  all  that 
she  is  now  selling,  but  she  must  sell  to  us  enough  ad- 
ditional manufactured  goods  to  equal  the  interest  on 
the  debt  and  its  ultimate  extinction.  Under  present 
conditions  that  does  not  seem  feasible. 

It  is  a  distinctly  different  matter,  however,  for 
Europe  to  make  payment  in  kind  within  her  own 
borders.  Rightly  directed,  there  is  an  ample  supply 
of  labor.  Payments  to  us  would  be  made  in  terms 
of  credits  established  by  our  debtor  nations  within 
themselves.  Payments  which  we  made  from  these 
credits  would  cover  expenditures  for  labor,  for  mate- 
rials, machinery,  steel  or  for  other  products  necessary 
in  developing  the  projects  which  we  decided  to  stimu- 
late. 

The  real  purport  of  the  suggestion  which  I  make 
is  so  to  direct  European  industrial  effort  that  it  will 
not  become  a  sweatshop  competition  in  the  interna- 
tional markets  with  the  ordinary  articles  of  manu- 
facture, but  will  instead  be  directed  toward  fresh  con- 
structive enterprise  that  would  be  for  Europe's  eco- 
nomic welfare. 

If  one  had  a  mortgage  on  a  farm  and,  owing  to 
temporary  causes,  the  farmer  was  unable  to  pay  his 
interest,  a  wise  creditor,  instead  of  harassing  the 
debtor  into  a  state  of  economic  hopelessness,  might  en- 
courage him  to  put  forth  every  effort  to  improve  the 


284  WHAT  NEXT  IN  EUROPE? 

productive  capacity  of  his  fields.  It  would  then  be 
conceivable  that  a  debt  that  could  not  at  once  be  paid 
might  ultimately  be  met.  There  is  a  potential  pro- 
ductive capacity  in  Europe  which  would  enable  people 
there  greatly  to  improve  their  situation.  Their  efforts 
could  be  directed  to  that  end  and  a  great  deal  accom- 
plished. If  we  insist  on  their  paying  directly  to  us, 
such  payments  as  they  make  will  at  the  present  time 
hamper  their  economic  reconstruction.  If  we  direct 
their  efforts  toward  their  own  economic  up-building, 
we  will  improve  the  status  of  the  obligations  owed  us 
in  the  end,  because  we  would  increase  our  debtors' 
capacity  to  pay. 

Europe  needs  better  transportation.  We  could  help 
provide  it.  Europe  needs  a  great  development  of  its 
ample  hydro-electric  power  in  order  that  it  may  have 
cheaper  motive  power,  and  may  economize  its  far  too 
small  fuel  supply.  We  could  aid  in  initiating  such 
projects.  There  are  cities  in  Eastern  Europe  that  need 
better  systems  of  sanitation.  Such  provision  would  be 
of  great  economic  importance.  We  could  give  impetus 
to  it. 

If  space  permitted,  I  would  lay  before  you  a  much 
fuller  exposition  of  the  possibilities  of  economic  devel- 
opment. I  would  emphasize  what  might  be  done  for 
Italy  and  Austria  in  developing  great  hydro-electric 
possibilities.  If  we  took  only  six  months'  interest, 
two  hundred  and  fifty  million  dollars,  and  put  it  into 


PAYMENT  AND  REHABILITATION       285 

hydro-electric  development,  taking  in  exchange  a  mort- 
gage on  that  development,  we  should  have  provided  in 
those  two  countries  for  a  saving  in  coal  imports  which 
would  materially  help  them  balance  their  foreign  trade, 
and  we  would  obtain  for  ourselves  a  sound  security 
which  would  ultimately  be  repaid. 

If  we  would  devote  the  income  for  a  few  months 
toward  equipping  Eastern  Europe  with  a  modern  grain 
elevator  system  we  would  have  conferred  a  mate- 
rial blessing  on  Eastern  peasants  and  Western  con- 
sumers alike  in  stimulating  production  and  conserving 
produce. 

Mark  that  there  is  no  relation  under  this  between 
the  source  of  the  receipt  and  the  place  of  expenditure. 
The  expenditure  of  the  money  we  received  would  be 
made  where  and  how  we  willed.  It  would  be  our 
affair,  not  the  affair  of  the  debtors. 

Some  part  of  what  we  received,  however,  would 
probably  be  spent  without  possibility  of  direct  return. 
If  such  expenditures  were  wisely  made,  the  indirect 
return  would  be  enormous.  There  could  be  written  a 
financial  prospectus  of  what  might  be  accomplished  by 
the  wise  spending  of  five  hundred  million  dollars  a 
year  which  would  be  the  most  fascinating  financial 
document  that  was  ever  prepared. 

Let  us  admit  for  the  moment  the  possibility  of  devis- 
ing a  sound  and  wise  plan  for  such  expenditures  in 
Europe.  You  may  still  ask  why  do  I  think  that  Amer- 


286  WHAT  NEXT  IN  EUROPE? 

ica  has  the  wisdom,  the  experience,  the  temperament, 
the  freedom  from  unwise  political  interference  which 
would  warrant  the  hope  that  we  could,  even  with  the 
best  motives  in  the  world,  successfully  conduct  such 
a  great  experiment. 

A  most  impressive  reason  for  believing  this  to  be 
within  the  range  of  possibility  can  be  pointed  out.  It 
is  the  work  which  Americans  have  done,  and  are  doing, 
in  Europe.  I  have  seen  something  of  that  work  this 
year.  I  have  studied  with  care  in  many  countries 
the  administrative  ability  which  our  countrymen  are 
showing,  and  I  have  rarely  seen  anything  that  made 
me  prouder  of  being  an  American. 

I  know  something  of  the  work  which  the  American 
Relief  Administration,  operated  under  Mr.  Hoover's 
direction,  accomplished.  I  am  familiar  with  other 
American  organizations,  such  as  the  Red  Cross,  the 
Y.M.C.A.,  the  Quakers  and  the  Near  East  Relief. 
The  character  of  management  of  these  organizations, 
the  ability  which  they  have  displayed  in  working  with 
foreign  people,  leads  me  to  have  great  confidence  in 
the  American  genius  for  work  in  foreign  fields. 

I  have  had  the  opportunity  to  observe  also  in  the 
Near  East  a  work  which  has  extended  over  a  far 
longer  period  than  the  American  Relief  Administra- 
tion. It  is  a  work  less  picturesque  than  that  done 
by  some  of  the  American  organizations  working  in 
Europe,  but  it  has  had  the  advantage  of  time  to  prove 


PAYMENT  AND  REHABILITATION       287 

its  soundness.  I  refer  to  the  results  accomplished  by 
such  institutions  as  Robert  College  and  the  Woman's 
College  at  Constantinople,  as  well  as  to  the  general 
educational  activities  of  various  American  religious 
groups. 

No  one  can  travel  through  the  Near  East  and  meet 
the  men  who  are  to-day  responsible  for  the  administra- 
tion of  affairs  without  in  the  first  place  being  impressed 
by  the  number  of  such  men  who  are  graduates  of 
Robert  College;  and  then  further  being  enormously 
impressed  with  the  profound  influence  which  the  train- 
ing in  such  a  college  of  a  comparatively  few  men  has 
accomplished  in  the  political  and  social  life  of  the  Near 
East.  I  saw  evidences  of  this  in  every  country  in  the 
Balkans. 

In  its  way,  Constantinople  College  has  performed  the 
same  sort  of  service,  and  I  have  no  doubt  that  other 
American  institutions  of  learning — and  there  are  some 
thirty  now — have  had  considerable  careers  of  use- 
fulness. 

It  may  be  answered  that  their  influence  has  not  yet 
brought  about  a  millennium,  and  that  is  true;  but  it 
has  certainly  saved  millions  of  people  from  immeasur- 
ably more  unhappy  conditions  than  those  which  they 
have  actually  encountered. 

All  the  way  from  the  Baltic  to  the  Black  Sea,  in 
Poland,  Czecho-Slovakia,  Hungary,  Jugo-Slavia,  Bul- 
garia and  Turkey,  there  is  a  newly  awakened  passion 


288  WHAT  NEXT  IN  EUROPE? 

for  education.  Men  are  coming  to  see  that  democracy 
can  survive  only  if  there  are  soundly  educated  leaders. 
A  work  of  helpfulness  and  stimulation  can  be  accom- 
plished in  education  which  will  receive  enthusiastic 
support  from  these  various  nations.  Such  a  work 
would  cost,  in  the  light  of  figures  we  are  now  dealing 
with,  but  a  trivial  sum.  It  would  profoundly  influ- 
ence the  future  course  of  civilization  in  Europe,  and 
the  future  welfare  of  the  world. 

I  do  not  believe  this  is  an  impractical  dream,  but 
rather  that  it  is  a  most  materially  practical  project. 
The  fruit  of  it  would  come  to  quick  maturity.  Lessons 
of  mutual  racial  respect  are  being  learned  in  the 
schools,  colleges  and  universities  where  numerous 
races,  born  to  blind  antagonism,  are  being  educated 
side  by  side.  Multiply  the  opportunity  to  learn  such 
lessons,  and  a  profound  influence  toward  softening  the 
world-old  hatreds  of  Europe  will  be  set  in  motion.  It 
would  be  a  great  and  fundamental  step  in  the  regenera- 
tion of  Europe,  for  I  profoundly  believe  that  the  real 
solution  of  Europe's  difficulties  is  a  spiritual  one,  and 
that  with  a  continuance  of  these  racial  hatreds  peoples 
must  economically  perish. 

We  would  not  have  to  carry  it  on  single-handed; 
we  would  only  need  to  start,  organize  and  direct.  The 
means  for  the  enlargement  of  its  scope  and  the  adapta- 
tion of  its  growth  to  the  national  genius  of  the  dif- 
ferent countries,  would  come  from  local  sources. 


PAYMENT  AND  REHABILITATION      289 

The  effect  of  the  program  I  have  in  mind  would  not 
be  confined  to  Eastern  Europe.  The  restoration  of  the 
economic  stability  of  such  countries  as  England,  the 
restoration  of  the  economic  stability  of  all  those  coun- 
tries that  have  become  so  highly  industrialized  that  they 
must  sell  the  products  of  their  labor  in  the  form  of 
manufactured  goods  to  obtain  the  food  upon  which 
their  existence  depends,  lies  outside  of  themselves.  If 
they  are  to  continue  to  live  with  their  present  numbers, 
they  must  have  solvent  steady  customers  for  their 
goods.  No  greater  service  could  be  done  those  coun- 
tries nor  America  than  to  help  build  up  into  economic 
soundness  the  customer  nations  which  are  to-day  stag- 
nating, because  of  mental  and  economic  backwardness, 
and  racial  hatreds.  If  markets  were  opened,  industrial 
nations  which  are  now  facing  starvation  would  quickly 
be  able  to  render  a  service  to  world  society,  against 
which  the  world  would  provide  them  with  ample  food. 

Let  us  look  at  the  matter  from  another  angle,  the 
angle  of  food  production.  No  one  who  has  traveled 
in  Eastern  Europe  with  open  eyes  can  avoid  the  im- 
pression of  tremendous  latent  agricultural  possibili- 
ties. Take  the  illimitable  grain  fields  of  Roumania 
and  South  Russia,  for  example.  No  lands  are  more 
perfectly  adapted  to  the  possibilities  of  almost  un- 
limited improvement  of  productivity  if  scientific  meth- 
ods and  modern  machinery  are  brought  into  play. 

These  wonderful  grain  fields  of  South  Russia,  now 


ago  WHAT  NEXT  IN  EUROPE? 

plowed  by  the  diminutive  ponies  in  a  way  that  but 
scratches  the  surface,  produce  on  an  average  six 
bushels  of  wheat  to  the  acre.  Intelligent  instruction, 
better  seed  and  better  breeds  of  farm  animals,  the  in- 
troduction of  modern  machinery,  and  an  arrangement 
by  which  small  holdings  were  united  under  cooperative 
associations  so  that  the  full  benefit  of  motor-driven 
farm  machinery  could  be  realized,  would  easily  result 
in  producing  three  times  their  pre-war  product.  A 
work  can  be  done  in  educating  the  peasants  of  Eastern 
Europe  to  better  agricultural  methods,  which  will  com- 
pensate most  of  the  losses  of  the  war;  to  do  that  will 
require  only  a  little  capital,  and  a  great  deal  of  unselfish 
service.  Such  an  undertaking  as  I  propose  could  read- 
ily accomplish  that. 

Is  this  a  plan  that  would  build  tip  difficult  com- 
petition for  our  own  farmers?  Not  at  all.  It  is  a 
plan  which  would  help  feed  a  Europe  which  may  oth- 
erwise be  but  partially  fed,  and  help  restore  to  Europe 
the  economic  power  which  will  make  her  a  greater  cus- 
tomer of  America  than  she  has  ever  been  before. 

I  would  not  plan  to  take  from  England,  France,  and 
Italy  the  last  dollar  that  could  be  forced  from  them  to 
pay  their  debt  to  us,  and  then  spend  it  all  in  Eastern 
Europe, — great  as  the  indirect  recompense  of  such 
an  expenditure  would  be  in  benefiting  those  Western 
nations.  On  the  other  hand,  I  would  not  presume  to 
impose  our  ideas  of  culture  upon  those  already  highly 


PAYMENT  AND  REHABILITATION       291 

cultivated  nations.  So  far  as  they  were  ready  to  accept 
grants  for  purposes  for  which  they  are,  for  the  time 
being  at  least,  incapable  of  providing  by  direct  taxa- 
tion, I  would  let  a  portion  of  the  money  they  paid  us 
be  expended  within  their  own  borders. 

I  would  propose  to  England  the  establishment  of 
great  scientific  laboratories.  With  her  genius  for 
sound  scientific  research  she  would,  through  a  stimula- 
tion of  technical  education  and  scientific  investigation, 
give  to  the  world  new  knowledge  of  incalculable  value. 

I  would  give  to  Italy,  if  she  agreed  to  have  it,  the 
means  for  establishing  great  schools  of  applied  art, 
so  that  the  tremendous  genius  for  handicraft  which 
the  Italian  possesses  may  be  turned  into  channels  which 
will  produce  goods  to  enrich  the  world. 

I  admit  that  it  would  be  more  difficult  to  plan  such 
contributions  for  France.  I  have  memories  of  service 
as  a  Director  of  the  Society  for  Aiding  French 
Orphans.  France  rests  in  the  belief — and  with  no 
small  amount  of  sound  reason — that  her  culture  is 
already  so  perfect  that  she  would  not  accept  such 
expenditure  if  it  came  with  a  touch  of  American  direc- 
tion. In  that  field  we  ought  to  proceed  with  caution 
and  modesty  and  good  taste;  but  even  France  might 
agree  that  some  of  the  money  she  paid  us  could,  in 
turn,  be  expended  upon  objects  in  France  that  would 
work  out  for  the  benefit  of  mankind. 

I  would  not  make  the  expenditure  on  such  a  program 


292  WHAT  NEXT  IN  EUROPE? 

as  I  am  trying  to  outline  wholly  a  matter  of  American 
direction.  I  would  draw  upon  the  culture,  the  train- 
ing, the  special  knowledge,  the  high  purpose  of  the 
best  of  Europeans  to  aid  in  formulating  the  program 
and  in  administering  it,  always  keeping  the  control  of 
the  situation,  however,  in  our  own  hands,  for  it  would 
be  our  money  that  was  being  expended. 

How  to  administer  such  a  trust  as  I  am  suggesting, 
would  form  a  chapter  too  long  to  include  in  this  out- 
line. Perhaps  I  can  visualize  what  I  have  in  mind  in 
regard  to  administration  in  a  sentence.  If  the  admin- 
istration of  the  whole  project  of  expenditure  were 
placed  in  the  hands  of  a  Commission,  headed  by  Her- 
-bert  Hoover,  I  think  we  could  all  safely  go  about  our 
domestic  affairs  and  find  nothing  but  satisfaction  as 
we  read  the  report  of  the  work. 

Our  history  is  not  wholly  devoid  of  adventures  in 
altruism.  When,  after  the  Boxer  Uprising,  America 
in  common  with  several  European  nations  was,  some- 
what to  America's  embarrassment,  awarded  an  indem- 
nity of  some  twenty  millions,  we  promptly  declared  that 
while  it  was  probably  just  that  China  should  pay  us 
that  indemnity  we  did  not  propose  to  receive  it  for 
our  own  enrichment.  So  we  have  in  all  the  years  since 
devoted  the  payments  on  account  of  that  indemnity  to 
the  education  of  Chinese  students  in  American  insti- 
tutions. The  result  of  that  magnanimous  act  was  to 
give  America  a  prestige  in  China  such  as  no  other 


PAYMENT  AND  REHABILITATION       293 

nation  enjoyed.  That  prestige  would  have  been  trans- 
lated directly  into  commercial  profits,  had  not  the  gov- 
ernment of  China  fallen  upon  such  evil  days,  and  had 
not  the  commercial  opening  of  China,  which  some  day 
will  be  a  certainty,  been  for  the  time  delayed. 

I  should  have  no  hesitation  in  arguing  the  merits  of 
this  plan  with  the  coldest  of  American  materialists. 
All  I  would  ask  is  that  such  a  man  have  imagination 
enough  to  look  ahead  a  few  years  for  results.  Never 
was  there  a  greater  fallacy  than  to  say  there  are  no 
friendships  in  business.  The  very  warp  and  woof  of 
business  is  friendship,  confidence,  mutual  trust,  belief 
in  honest  and  not  too  selfish  purposes.  As  a  matter  of 
fact,  I  believe  that  if  we  were  to  look  selfishly  at  the 
situation  over  a  period  of,  say,  twenty  years,  there  is 
no  proposal  in  regard  to  this  Allied  debt  which  would 
begin  to  give  America  the  material  results  that  such  a 
proposal  as  I  have  suggested  will  bring. 

To  the  mind  that  hesitates  over  such  a  project  as  this, 
I  would  like  to  put  a  question.  If  this  plan  is  not  ac- 
ceptable, what  plan  then  would  you  propose  ?  To  insist 
upon  the  payment,  and  fully  to  accept  all  the  payment 
that  we  could  force  our  debtors  to  make  would  cer- 
tainly result  in  two  things.  In  the  first  place,  we 
would  get  very  little;  in  the  next  place,  we  would 
create  a  general  European  atmosphere  of  antagonism. 

The  debtor  never  loves  the  creditor.  If  the  debtor 
is  seriously  impoverished,  if  the  creditor  is  rich  and 


294  WHAT  NEXT  IN  EUROPE? 

powerful,  if  there  are  circumstances  concerning  the 
debt  which  permit  the  debtor  to  argue,  to  his  own  satis- 
faction at  least,  that  there  are  palliative  circumstances 
which  throw  doubt  on  the  full  validity  of  the  debt,  the 
relations  between  debtor  and  creditor  must  necessarily 
become  strained. 

Under  the  plan  here  proposed,  it  seems  to  me  that 
the  sting  of  our  insistence  would  be  taken  away  even 
from  the  minds  of  those  who  to-day  see  with  the  least 
clearness  their  moral  obligation. 

If  we  convert  the  debt  due  us  into  a  debt  due  to 
humanity  the  whole  world  will  want  to  see  it  paid. 
Each  national  neighbor  of  our  debtors  will  be  even 
more  insistent  than  we  that  the  obligation  be  dis- 
charged, because  they  will  have  hopes  of  improving 
their  own  situations  with  the  aid  of  some  of  the  funds 
so  realized.  World  sentiment  would  be  favorable  to 
this  debt  being  paid  if  the  purposes  to  which  the 
amounts  were  to  be  devoted  were  clearly  seen  to  be 
wise  and  sound  purposes  for  European  regeneration. 

We  need  not  make  an  irrevocable  decision  when  we 
embark  on  this  program.  For  a  good  many  years,  I 
believe  it  would  be  wise  for  us  to  devote  all  we  re- 
ceive to  such  purposes  as  I  have  suggested.  It  is 
entirely  probable,  however,  that  there  would  come  such 
economic  restoration  that  in  the  end  a  considerable 
part,  conceivably  nearly  all,  of  the  principal  might  be 
paid  to  us.  Interest  money  that  we  loaned  and  re- 


PAYMENT  AND  REHABILITATION       295 

loaned  for  economic  development  would  be  converted 
from  the  original  obligation  of  the  Allies  to  obliga- 
tions representing  material  properties  which  we  cre- 
ated. Probably  they  would  be  backed  by  the  obliga- 
tions of  the  governments  of  those  countries  where  this 
economic  development  took  place.  The  time  might 
come  when  we  would  cease  to  make  these  sums  revolv- 
ing credits  for  European  economic  development,  be- 
cause there  really  would  not  be  further  need  for  us 
to  do  so. 

I  am  firmly  convinced  that  in  the  great  catastrophe 
the  war  has  brought  there  has  been  created  an  oppor- 
tunity which  could  never  otherwise  have  arisen.  The 
obstacles  which  have  arisen  in  the  path  of  European 
civilization  can  be  turned  into  stepping-stones  leading 
to  a  position  vastly  better  than  anything  Europe  has 
ever  known.  The  war  has  made  a  great  awakening  in 
millions  of  dormant  minds.  It  is  possible  that  newly 
awakened  impulses,  if  they  can  only  be  harnessed  up 
to  the  machinery  of  production  and  distribution,  can 
result  in  a  great  actual  improvement  of  civilization. 
That  awakening,  those  impulses,  are  now  disconnected 
from  any  machinery  of  commerce,  and  they  may  all  be 
lost  in  a  decaying  civilization.  We  can  help  turn  them 
to  account.  The  possibilities  in  society  for  realizing 
better  conditions  for  all  humanity  are  undreamed  of. 
The  opportunity  has  arisen  to  make  those  possibilities 
realities. 


296  WHAT  NEXT  IN  EUROPE? 

If  we  insist  to  the  letter  upon  our  claim,  our  claim 
will  in  all  probability  never  be  met.  If  we  insist  upon 
it  selfishly,  we  shall  realize  in  hatreds  but  not  in  cash. 
If  we  are  generous,  and  wisely  generous,  those  claims 
can  all  be  paid,  and  I  believe  will  all  be  paid,  and  the 
good  we  do  with  them  will  mean  more  to  us  mate- 
rially than  anything  we  would  conceivably  be  part- 
ing with. 

"For  whosoever  will  save  his  life  shall  lose  it;  but 
whosoever  shall  lose  his  life  for  My  sake  and  the  Gos- 
pel's, the  same  shall  save  it" 


CHAPTER  XVIII 
AMERICA'S  RESPONSIBILITIES 

THE  conclusions  of  any  man  who  has  made  an  inves- 
tigation of  European  problems  cannot  fail  to  be  grave. 
I  believe  that  I  have  shown  that  there  has  been  some 
recovery,  that  some  improvement  has  been  made  since 
the  armistice,  though  it  is  by  no  means  certain  that 
that  improvement  is  permanent,  or  is  likely  to  be  pro- 
gressive. As  I  have  pointed  out,  there  are  deep  trou- 
bles which  peace  has  not  composed.  These  troubles 
are  racial,  national  and  political ;  they  are  commercial 
and  economic.  They  include  inflation  and  extreme 
currency  deterioration.  Debts  have  been  created  which 
are  unexampled  in  the  world's  financial  history.  There 
is  a  vast  total  of  international  debts  owed  by  one  na- 
tion to  another  that  can  for  the  present  be  classed 
as  "frozen  credit." 

The  payment  of  these  international  obligations  pre- 
sents economic  difficulties  of  a  more  serious  character 
than  do  the  much  greater  internal  debts.  One  of  the 
fundamental  troubles  in  Europe  is  the  disorganization 
of  the  machinery  for  the  international  exchange  of 
goods.  Millions  of  people  can  live  only  by  the  ex- 
change of  their  labor  in  shop  and  factory  for  importa- 

297 


298  WHAT  NEXT  IN  EUROPE? 

tions  of  food,  so  that  this  breakdown  of  the  mechan- 
ism of  international  commerce  raises  importunate 
questions  in  regard  to  the  food  supply. 

The  general  spirit  that  animates  Europe  is  not 
amicable.  The  war  left  most  people  in  a  bad  state 
of  nerves,  and  the  atmosphere  of  fear  and  rancor 
created  by  the  peace  terms  has  not  calmed  them.  Eu- 
rope is  shot  through  with  political  differences.  A  con- 
ception of  exaggerated  nationalism  has  been  created 
which  interferes  with  the  freedom  of  international  com- 
merce, and  with  the  recovery  of  economic  equilibrium. 
Taxes  are  distressingly  high,  but  not  high  enough  to 
balance  national  budgets,  and  debts  have  continued  to 
grow  since  the  armistice  is  an  alarming  way. 

A  recognition  of  the  economic  unity  of  Europe  is 
imperative,  and  there  is  only  the  slightest  indication 
of  the  growth  of  that  recognition.  The  war  seemed 
to  teach  few  lessons  effectively.  There  is  still  a  great 
deal  of  the  old  underhand  diplomacy,  and  even  be- 
tween the  Allies  there  have  been  secret  maneuvers  for 
selfish  advantage.  The  spirit  of  Europe  is  wrong. 
The  reasons  for  that  are  not  difficult  to  find,  but  it  is 
extremely  difficult  to  suggest  any  practical  cure. 

What  then  should  be  America's  role?  We  are  not 
yet  an  internationally-minded  people.  During  our 
whole  history  we  have  been  engaged  in  internal  devel- 
opment, for  we  have  had  a  raw  continent  to  subdue. 
While  we  have  made  remarkable  progress  with  the 


AMERICA'S  RESPONSIBILITIES  299 

task,  it  has  left  us  no  time  to  give  much  attention  to 
world  affairs.  Up  to  the  outbreak  of  the  war  we  were 
a  debtor  nation.  Our  economic  contact  with  the  rest 
of  the  world  had  taken  two  forms.  We  had  to  secure 
financial  credits  to  assist  our  internal  developments, 
and  to  force  the  sale  of  our  products  and  manufac- 
tures so  that  we  might  have  a  foreign  trade  balance 
with  which  to  meet  interest  on  our  debts.  It  is  diffi- 
cult to  adjust  our  national  mind  to  a  realization  of 
the  economic  change  that  has  come  by  our  transition 
into  the  position  of  the  greatest  of  creditor  nations. 

We  have  but  a  superficial  knowledge  of  foreign  af- 
fairs. Our  domestic  preoccupation  has  been  such  that 
foreign  affairs  lacked  vital  interest,  and  naturally  we 
have  preferred  to  engage  our  minds  with  matters  we 
understood.  During  and  since  the  war  we  have  ven- 
tured into  foreign  trade,  and  the  result  of  the  adven- 
ture has  not  been  wholly  pleasing.  Through  our  lack 
of  experience  we  made  a  record  in  many  fields  that 
was  neither  profitable  nor  flattering  to  our  national 
pride. 

In  view  of  these  conditions,  it  is  not  surprising  that 
a  great  mass  of  public  opinion  in  America  is  dis- 
satisfied with  our  foreign  relations.  We  see  that  for- 
eign affairs  are  extremely  complicated,  and  that  we 
are  ignorant  of  many  of  the  underlying  forces.  We 
doubt  our  genius  for  successfully  adventuring  either 
into  international  politics  or  international  trade.  We 


300  WHAT  NEXT  IN  EUROPE? 

have  profound  confidence  in  our  own  institutions,  and 
we  believe  in  the  opportunity  that  an  only  partially  de- 
veloped America  still  offers  us  under  the  protection 
of  our  own  laws.  We  view  this  vast  America  with 
a  hundred  and  ten  million  economically  homogeneous 
people,  earning  high  wages  and  used  to  a  high  stand- 
ard of  living  which  high  wages  makes  possible,  and 
feel  that  there  is  solid  patriotism  as  well  as  sound  sense 
in  the  slogan,  "America  First." 

We  are  materialistic,  though  perhaps  less  so  than 
most  other  people.  There  is  some  recognition  that  we 
have  a  responsibility  toward  the  rest  of  the  world, 
but  even  altruists  have  doubts  of  the  effectiveness  of 
any  attempt  on  our  part  to  concern  ourselves  more 
widely  with  world  affairs.  Some  of  them  feel  that 
with  the  best  of  good  intentions  we  might  do  more 
harm  than  good  if  we  became  too  deeply  involved  in 
world  politics. 

There  is  a  great  weight  of  solidly  materialistic 
opinion  behind  the  idea  that  it  will  be  patriotic  as  well 
as  profitable  for  us  to  follow  the  course  that  will  best 
conserve  America's  material  interests.  Europe's  trou- 
bles are  not  of  our  creating.  We  are  constantly  hear- 
ing that  they  could  be  alleviated  if  Europeans  were 
animated  by  a  better  spirit,  and  would  adopt  wiser 
political  aims.  Many  of  us  feel  that  unless  Europe 
reforms  it  is  hopeless  for  us  to  attempt  to  come  to 
Europe's  aid  on  any  great  scale. 


AMERICA'S  RESPONSIBILITIES  301 

It  is  natural,  therefore,  to  find  that  in  America  the 
opinion  is  growing  that  we  can  best  engage  ourselves 
with  our  own  concerns.  Our  Government  represents 
a  federation  of  States  which  are  restrained  from  in- 
dividual selfishness  and  which  work  as  a  single  eco- 
nomic unit.  Many  believe  that  we  could  render  no 
greater  service  to  the  world  at  large  than  to  perfect 
this  illustration  of  economic,  social  and  political  unity. 

In  any  event,  the  man  who  is  concerned  with  his  own 
immediate  material  welfare — and  that  characterization 
embraces  nearly  every  one — is  coming  to  believe  that 
his  best  interests  will  be  served  if  America  'does  not 
become  further  involved  in  the  concerns  of  other  states. 
A  type  of  individual  is  developing  who  might  be  termed 
the  Little  American.  He  sees  his  country  in  the  pos- 
session of  a  continent,  and  a  continent  with  such  a 
variety  of  resources  that  it  is  almost  perfectly  self- 
supporting,  for  with  all  of  the  enormous  needs  of  our 
people,  about  all  that  we  must  have  from  without  our 
borders  are  coffee,  tea  and  rubber. 

The  Little  American  argues  that  we  could  have  a 
very  big  and  very  prosperous  America  without  much 
regard  to  the  rest  of  the  world.  He  admits  that  in  a 
self-contained  America  we  would  find  that  certain  in- 
dustrial plants  were  overdeveloped.  The  transition 
period  from  a  time  when  we  exported  enormous 
amounts  to  one  in  which  we  lived  a  comparatively  self- 
contained  life  would  be  trying,  but  he  says  that  in  a 


302  WHAT  NEXT  IN  EUROPE? 

large  measure  this  transition  has  been  accomplished 
already.  We  have  created  a  larger  productive  capac- 
ity for  iron  and  steel  than  would  be  needed  to  amply 
supply  our  domestic  consumption.  We  are  mining 
more  copper  than  we  could  use  ourselves.  For  a  time 
we  are  raising  more  cotton  than  we  could  weave. 
There  would  have  to  be  considerable  adjustment  to 
make  America  a  self-contained  economic  unit.  There 
would  be  no  need  that  it  should  be  completely  accom- 
plished, however.  The  rest  of  the  world  must  have 
our  surplus  products  if  it  has  anything  left  to  pay  for 
them.  Our  foreign  trade  at  best  has  only  been  a 
small  percentage  of  our  total  domestic  business,  and 
we  could  easily  continue  to  supply  the  rest  of  the  world 
enough  to  pay  for  those  few  essentials  that  we  do  not 
ourselves-  produce. 

The  Little  American  says,  rightly,  that  there  can  be 
no  such  thing  as  general  overproduction  in  this  coun- 
try. There  may  easily  be  a  maladjustment  of  pro- 
duction, resulting  in  an  undisposable  surplus  of  cer- 
tain things,  but  this  maladjustment  would  be  quickly 
cured.  We  could  adapt  our  labor  to  producing  a 
balanced  product,  and  would  soon  be  busy  supplying 
our  own  wants. 

It  is  not  at  all  a  question  of  all  of  us  living  by  tak- 
ing in  one  another's  washing.  America  is  practically 
a  complete  economic  world,  if  we  will  adjust  ourselves 
to  a  balance  of  production  with  consumption.  Why 


AMERICA'S  RESPONSIBILITIES  303 

should  we  not  do  that?  Let  us  look  after  our  own 
interests,  supply  our  own  material  wants,  and  develop 
our  own  resources,  the  Little  American  says.  This 
vision  of  a  self-contained  America  is  alluring  from 
the  point  of  view  of  individual  comfort.  A  self- 
contained  America  could  be  very  great  in  its  domestic 
accomplishment,  extremely  comfortable  in  its  social 
life,  and  highly  satisfied  with  its  own  general  perfec- 
tion of  organization. 

It  is  not  alone  the  strict  materialist  who  looks  with 
favor  upon  such  a  course.  Broader-minded  people 
begin  to  raise  a  question  about  the  wisdom  of  further 
increasing  the  debts  which  the  rest  of  the  world  owes 
to  us.  International  indebtedness  has  its  dangers.  It 
is  a  cause  of  friction  between  governments.  Individual 
investments  in  foreign  countries  may  be  in  themselves 
economically  sound,  but  they  are  subject  to  extreme 
vicissitudes  in  the  event  of  war.  Foreign  investments 
necessitate  government  protection  and  are  sometimes 
provocative  of  war. 

It  is  argued,  therefore,  that  it  is  not  after  all  such 
a  narrow  minded  policy  to  adopt  the  view  that  the 
multiplication  of  our  foreign  investments  is  likely  to 
lead  to  unpleasant  complications  in  our  foreign  rela- 
tions. It  might  cost  us  in  the  future  far  more  than 
we  would  gain  from  the  material  advantage  of  con- 
tinuing predominant  world  creditor. 

I  believe  that  this  Little  American  view  is  wrong, 


304  WHAT  NEXT  IN  EUROPE? 

though  it  is  not  easy  to  demonstrate  to  a  materially 
minded  person  why  it  is  wrong.  Personally  I  am  al- 
most in  agreement  with  the  Little  American  in  main- 
taining that  this  country  can  be  a  prosperous  self- 
contained  economic  unit.  I  believe  we  can  attain  ma- 
terial prosperity  even  in  a  world  that  is  elsewhere 
terribly  disordered,  and  that  it  is  possible  to  adjust 
our  activities  so  that  we  can  have  as  high  a  measure 
of  prosperity  as  we  have  ever  known. 

But  does  that  conclusion  offer  sufficient  warrant  for 
accepting  the  program?  Is  material  prosperity  solely 
what  we  want  to  obtain,  or  is  it  the  most  important 
aim  we  should  have?  If  we  concentrated  our  wealth 
and  our  efforts  on  America  alone  and  were  utterly 
careless  of  the  fate  of  the  rest  of  the  world,  I  believe 
that  we  would  lose  our  soul.  I  believe  that  with  that 
loss  there  would  ultimately  come  a  loss  of  our  mate- 
rial advantages. 

For  the  time  being  we  are  like  a  rich  man  in  an 
impoverished  community.  Our  fields  are  broad  and 
productive.  Our  resources  are  vast  in  variety  and 
amount.  We  have  great  springs  of  liquid  capital. 
Shall  we  play  the  role  of  the  selfish  rich  man? 

I  do  not  feel  that  we  have  thus  far  laid  ourselves 
open  to  the  charge  that  we  are  playing  such  a  role, 
though  it  is  a  fact  that  such  an  accusation  is  in  the 
minds  of  many  Europeans.  They  are  suffering 
keenly,  and  feel  that  when  we  entered  the  war  we  took 


AMERICA'S  RESPONSIBILITIES  305 

an  irretrievable  step  toward  participation  in  European 
affairs,  but  that  we  have  been  inclined  to  dodge  sub- 
sequent responsibilities.  Our  evasion,  they  think,  has 
not  been  confined  to  financial  matters.  They  feel  that 
we  have  a  prestige  and  a  unique  position  of  potential 
leadership,  and  that  we  have  failed  to  live  up  to  our 
obligations.  In  stating,  as  we  did,  the  aims  of  the  war, 
and  in  laying  down  the  principles  that  should  govern 
the  making  of  peace,  they  feel  that  for  a  time  we  took 
the  moral  leadership  of  the  situation  and  then  failed 
to  shoulder  resulting  responsibilities.  That  indictment 
I  do  not  believe  is  wholly  true,  but  there  is  some 
foundation  for  it. 

Our  philanthropic  aid  has  been  more  than  the  grudg- 
ing dole  with  which  the  rich  man  eases  his  conscience 
when  he  passes  a  person  in  distress.  We  have  saved 
the  lives  of  millions  of  Europeans.  More  than  that, 
the  encouragement  and  direction  we  have  given  in 
many  ways  have  stimulated  Europeans  to  come  to  the 
aid  of  their  own  people.  We  have  made  a  most  im- 
portant contribution  in  saving  a  large  part  of  the 
student  body  of  central  Europe  from  a  situation  in 
which,  left  to  themselves,  they  would  have  had  to 
abandon  the  hope  of  higher  education.  If  democracy 
is  to  live,  if  Europe  is  to  be  made  safe  for  democracy, 
if  the  progress  of  civilization  is  not  to  be  halted,  the 
torch  of  learning  must  be  carried  on  and  its  light  in- 
creased. We  have  accomplished  a  great  deal  in  that 


306  WHAT  NEXT  IN  EUROPE? 

direction.  Since  the  close  of  the  war  we  have  granted 
financial  credits  running  into  figures  larger  than  we 
ourselves  realize.  The  total  of  our  efforts  in  Europe 
has  been  very  great  and  no  one  can  deny  that  our 
assistance  has  been  vital. 

The  life  of  the  socially-minded  rich  man  is  full  of 
disappointments.  His  good  intentions  are  misinter- 
preted, his  acts  of  generosity  rarely  elicit  gratitude. 
He  has  to  content  himself  with  an  inner  knowledge 
that  his  aims  are  high,  and  that  they  are  dictated  by 
noble  impulses,  whether  they  are  appreciated  or  not. 
We  should  not  be  disappointed  with  the  appreciation 
we  have  received. 

If  our  nation  fails  in  the  eyes  of  Europe  to  recog- 
nize its  moral  obligation,  and  leaves  Europe  feeling 
that  we  are  evading  our  responsibilities,  feeling  that 
from  our  comfortable  point  of  vantage  we  do  not  view 
her  misery  with  just  apprehension,  we  must  not  let 
that  put  a  check  on  the  good  work  that  we  are  accom- 
plishing. 

The  situation  of  Europe  is  one  that  needs  much 
more  than  charity,  though  there  is  vital  need  for  a 
certain  amount  of  charity.  We  need  wisdom  to  gov- 
ern our  actions  in  that  field,  for  we  must  not  pau- 
perize Europe.  I  believe  on  the  whole  we  have  been 
extremely  wise  in  our  philanthropic  administration, 
and  have  directed  it  toward  helping  Europe  to  help 
herself.  Europe  is  so  sick,  however,  that  she  needs 


AMERICA'S  RESPONSIBILITIES  307 

something  besides  poultices  and  lotions.  She  is  so 
sick  that  she  needs  a  transfusion  of  blood.  She  needs 
encouragement,  unselfish  helpfulness,  perhaps  some 
admonition  and  direction. 

The  suggestion  which  I  have  made  in  regard  to 
handling  the  debts  which  European  States  owe  us  has 
in  it,  I  believe,  the  opportunity  for  offering  Europe 
a  very  great  measure  of  assistance.  We  can  view  the 
difficulties  in  Europe  with  an  objectiveness  which 
would  make  our  direction  and  advice  wiser  than  any 
other  that  is  likely  to  be  offered.  With  the  best  pos- 
sible administration  of  such  a  plan  for  dealing  with 
the  debts  due  us,  however,  we  would  not  cure  Eu- 
rope. We  would  offer  aid  that  would  be  materially 
helpful,  but  I  have  no  illusion  that  we  could  wave  i 
magic  wand  which  would  at  once  wipe  out  the 
consequences  of  war  and  the  peace  that  has  fol- 
lowed it. 

We  can  furnish  Europe  with  much  needed  capital, 
but  in  doing  that  we  need  to  exercise  great  caution. 
To  loan  governments  money  so  long  as  they  fail  to 
regulate  expenditures  properly  would  be  likely  to  do 
more  harm  than  good.  We  need  to  consider  with 
great  care  how  effective  any  further  government  loans 
would  be  in  improving  the  situation  permanently.  I 
think  there  is  reason  to  view  with  much  apprehension 
further  increase  of  international  debts,  unless  they  are 
contracted  under  conditions  which  are  reasonably  cer- 


308  WHAT  NEXT  IN  EUROPE? 

tain  to  bring  about  fundamental  improvement  in  the 
relations  between  European  states. 

While  I  believe  the  situation  of  Europe  is  extremely 
grave,  it  certainly  is  not  hopeless.  There  are  inherent 
possibilities  of  building  a  new  Europe  which  would  be 
more  prosperous  and  comfortable  in  every  way  than 
the  old  Europe  has  ever  been.  The  prerequisite  for 
that  is  a  change  of  spirit,  and  I  believe  we  can  do  a 
great  deal  to  allay  the  suspicions,  the  hatreds  and  the 
selfishness  of  European  people.  We  can  help  them  see 
the  necessity  for  unity;  help  them  apprehend  the  ter- 
rible cost  of  selfishness.  They  must  understand  that 
the  reconstruction  of  Europe  is  a  comprehensive  task. 
Only  united  effort,  and  a  recognition  that  the  welfare 
of  individual  nations  can  be  achieved  through  general 
international  good  will,  can  accomplish  it.  We  could 
largely  aid  in  developing  such  a  spirit. 

Our  first  duty,  as  Mazarik  said,  is  to  understand! 


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